Hidden Overhang of Domestic Debt and Its Role in the This-Time-Is-Different Syndrome: An Empirical Contingent Liabilities Model

Abstract

The recent studies in public finance literature open an exciting research area on hidden overhang of domestic public debt and creative accounting. In this study, I identify hidden public debts in Turkey. I then develop a dynamical model that takes as given the stock of contingent liabilities generated by lending/borrowing relationships among public entities and looks for the debt (in)tolerance of government to liquidate it in finite periods. Last, I introduce a general empirical methodology to analyze the role of overborrowing in the this-time-is-different syndrome and test model outcome against data for hidden debts in Turkey's postliberalization period (1989-2010).

Keywords:

• chaotic dynamics
• contingent liabilities
• debt intolerance
• hidden public debt
• this-time-is-different syndrome
• Turkey