Abstract
Staff Studies is the bi-annual (March and September) peer-reviewed journal of the Central Bank of Sri Lanka. The Journal aims at stimulating innovative research for the analysis of current macroeconomic issues and policy challenges faced by central banks while providing a forum to present recent theoretical and empirical research.
Highlights
“Fiscal crisis” is viewed in the literature as an umbrella term for all types of endangered fiscal solvency, including both external and domestic debt defaults
In the end, when the economy has no resistance left, the situation erupts into a full blown fiscal crisis, forcing governments to alter their policies by restructuring public debt or accessing significant external financial support to regain fiscal sustainability (Baldacci, et al 2011)
The probit model has been used to estimate fiscal crisis incidence and a survival model is employed to estimate the determinants of fiscal crisis duration
Summary
“Fiscal crisis” is viewed in the literature as an umbrella term for all types of endangered fiscal solvency, including both external and domestic debt defaults. This study offers some extensions to the previous studies on fiscal crises It examines the importance of economic and socio-political variables on fiscal crises using a broader definition of a fiscal crisis which includes near-default events to identify the onset of a fiscal crisis (Baldacci, et al 2011). All these variables are taken as five-year averages leading up to the crisis event, to explain how the pressure build-up in the economy could possibly predict the probability of a crisis occurring, as well as its duration.
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