Natural debt limit for the costa rican economy

Authors

  • Carlos Chaverri Morales Banco Central de Costa Rica (BCCR), Costa Rica

DOI:

https://doi.org/10.15359/eys.22-51.4

Keywords:

fiscal policy, debt, debt management

Abstract

The "Natural Debt Limit" (NDL) proposed by Mendoza and Oviedo (2004) is a complementary tool to the traditional indicators used to analyze debt sustainability. This limit determines the value of debt as a ratio of GDP, which is consistent with the government’s commitment to remain solvent in case the country permanently experiences a series of events that make income and expenses adjust to historical minimum levels.

Using annual statistical data from the Central Government of Costa Rica for the 1985-2015 period, the NDL value for the Costa Rican economy has been estimated at 48.6%.

Based on the results obtained and as part of the discussion intended with this paper, it is relevant to mention that the lack of fiscal reforms needed to increase revenue or reduce public spending would make government debt exceed the NDL value in the short term. Moreover, adjusting public spending without improving tax revenues would only delay converging the current level of debt to the defined threshold.

This could limit the actions of the monetary policy to fulfill its primary objective of price stability.

Author Biography

Carlos Chaverri Morales, Banco Central de Costa Rica (BCCR)

Economista, Departamento de Investigación Económica, Banco Central de Costa Rica (BCCR)

References

Boreztein, E., Cavallo, E., Cifuentes, P. y Valencia, O. (2013). Plantilla Integrada para Análisis de Sostenibilidad de Deuda: Versión 2.0, Versión revisada del manual de instrucciones. Recuperado de http://www.iadb.org/es/investigacion-y-datos/detalles-de-publicacion,3169.html?pub_id=IDB-TN-576

Espinoza, J. y Valerio, M. (2014). Sostenibilidad Fiscal en Costa Rica, 1991-2013: una aproximación a través del método de Montecarlo. Revista Economía y Sociedad, 19(45), 72-95. doi: http://dx.doi.org/10.15359/eys.19-45.3

Fernández, K. (2005). Evaluación de la Sostenibilidad Fiscal en Costa Rica: Un Enfoque Estocástico (Tesis de Maestría de la Universidad Pontificia Católica de Chile). Recuperado de http://economia.uc.cl/docs/tesis_kfernandez.pdf

Madrigal, J., Campo, R. y Granados, L. (2014). Centroamérica: Enfrentando el Reto de la Sostenibilidad de las Finanzas Pública (Documento de Trabajo SECMCA 01-2014). Recuperado del sitio web de la Secretaría Ejecutiva del Consejo Monetario Centroamericano: http://www.secmca.org/INVESTIGACIONES_ECONOMICAS/InvestigacionesSECMCA/01_2014_Sostenibilidad_Fiscal.pdf

Mendoza, E. y Oviedo, P. (2004). Public Debt, Fiscal Solvency and Macroeconomic Uncertainty in Latin America: The Cases of Brazil, Colombia, Costa Rica, and Mexico (National Bureau of Economic Research Working Paper No. 10637). Recuperado del sitio National Bureau of Economic Research: http://www.nber.org/papers/w10637.pdf

Mendoza, E. y Oviedo, P. (2009). Public Debt, fiscal solvency and macroeconomic uncertainty in Latin America. The cases of Brazil, Colombia, Costa Rica and México. Economía Mexicana Nueva Época, XVIII(2), 133-173. Recuperado de http://www.economiamexicana.cide.edu/num_anteriores/XVIII2/01_EnriqueMendoza_(133-173).pdf

Reinhart, C. & Rogoff, K. (2010). Growth in a time of debt. American Economic Review, 100(2), 573-78. Recuperado de http://scholar.harvard.edu/files/rogoff/files/growth_in_time_debt_aer.pdf

Rojas, M. (2007). Deuda y los efectos de la política fiscal: evaluación de vulnerabilidades para la economía costarricense (Documento de Investigación DIE-01-2007-DI). Recuperado del sitio web del Banco Central de Costa Rica: http://www.bccr.fi.cr/investigacioneseconomicas/sectorpublico/Deuda_y_efectos_Politica_Fiscal.pdf

Sargent, T. y Wallace, N. (1981). Some Unpleasant Monetarist Arithmetic. Quarterly Review, (1), 1-17. Recuperado de: https://www.minneapolisfed.org/research/quarterly-review/some-unpleasant-monetarist-arithmetic

Published

05/01/2017

How to Cite

Natural debt limit for the costa rican economy. (2017). Economía Y Sociedad, 22(51), 1-15. https://doi.org/10.15359/eys.22-51.4

Issue

Section

Articles (Arbitrated section)

How to Cite

Natural debt limit for the costa rican economy. (2017). Economía Y Sociedad, 22(51), 1-15. https://doi.org/10.15359/eys.22-51.4

Comentarios (ver términos de uso)

Similar Articles

1-10 of 325

You may also start an advanced similarity search for this article.