Fiscal sustainability in an emerging market economy: when does public debt turn bad?
This paper proposes a Markov-switching model to assess the sustainability of fiscal policy in Malaysia for the period 1980–2014. Our results indicate the policymakers in the past have followed a sustainable fiscal policy, except during the brief periods of economic difficulty. The empirical analysis...
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| Format: | Article |
| Language: | English |
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Elsevier
2017
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| Online Access: | http://psasir.upm.edu.my/id/eprint/61893/ http://psasir.upm.edu.my/id/eprint/61893/1/Fiscal%20sustainability%20in%20an%20emerging%20market%20economy.pdf |
| _version_ | 1848854512335323136 |
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| author | Baharumshah, Ahmad Zubaidi Soon, Siew Voon Lau, Evan |
| author_facet | Baharumshah, Ahmad Zubaidi Soon, Siew Voon Lau, Evan |
| author_sort | Baharumshah, Ahmad Zubaidi |
| building | UPM Institutional Repository |
| collection | Online Access |
| description | This paper proposes a Markov-switching model to assess the sustainability of fiscal policy in Malaysia for the period 1980–2014. Our results indicate the policymakers in the past have followed a sustainable fiscal policy, except during the brief periods of economic difficulty. The empirical analysis reveals that the government should cut the deficits only if they exceed a certain level, to ensure their sustainability in the long-run. Specifically, we find that after public debt exceeds a certain threshold level (above 55% of the gross domestic product), it is negatively correlated with economic activity. In addition to the threshold effect, we confirm the presence of a unidirectional causal relation between debt and growth. |
| first_indexed | 2025-11-15T11:11:03Z |
| format | Article |
| id | upm-61893 |
| institution | Universiti Putra Malaysia |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-15T11:11:03Z |
| publishDate | 2017 |
| publisher | Elsevier |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | upm-618932019-02-26T03:34:40Z http://psasir.upm.edu.my/id/eprint/61893/ Fiscal sustainability in an emerging market economy: when does public debt turn bad? Baharumshah, Ahmad Zubaidi Soon, Siew Voon Lau, Evan This paper proposes a Markov-switching model to assess the sustainability of fiscal policy in Malaysia for the period 1980–2014. Our results indicate the policymakers in the past have followed a sustainable fiscal policy, except during the brief periods of economic difficulty. The empirical analysis reveals that the government should cut the deficits only if they exceed a certain level, to ensure their sustainability in the long-run. Specifically, we find that after public debt exceeds a certain threshold level (above 55% of the gross domestic product), it is negatively correlated with economic activity. In addition to the threshold effect, we confirm the presence of a unidirectional causal relation between debt and growth. Elsevier 2017 Article PeerReviewed text en http://psasir.upm.edu.my/id/eprint/61893/1/Fiscal%20sustainability%20in%20an%20emerging%20market%20economy.pdf Baharumshah, Ahmad Zubaidi and Soon, Siew Voon and Lau, Evan (2017) Fiscal sustainability in an emerging market economy: when does public debt turn bad? Journal of Policy Modeling, 39 (1). 99 - 113. ISSN 0161-8938; ESSN: 1873-8060 https://www.sciencedirect.com/science/article/pii/S0161893816300990 10.1016/j.jpolmod.2016.11.002 |
| spellingShingle | Baharumshah, Ahmad Zubaidi Soon, Siew Voon Lau, Evan Fiscal sustainability in an emerging market economy: when does public debt turn bad? |
| title | Fiscal sustainability in an emerging market economy: when does public debt turn bad? |
| title_full | Fiscal sustainability in an emerging market economy: when does public debt turn bad? |
| title_fullStr | Fiscal sustainability in an emerging market economy: when does public debt turn bad? |
| title_full_unstemmed | Fiscal sustainability in an emerging market economy: when does public debt turn bad? |
| title_short | Fiscal sustainability in an emerging market economy: when does public debt turn bad? |
| title_sort | fiscal sustainability in an emerging market economy: when does public debt turn bad? |
| url | http://psasir.upm.edu.my/id/eprint/61893/ http://psasir.upm.edu.my/id/eprint/61893/ http://psasir.upm.edu.my/id/eprint/61893/ http://psasir.upm.edu.my/id/eprint/61893/1/Fiscal%20sustainability%20in%20an%20emerging%20market%20economy.pdf |