The persistence of fiscal adjustments in developing countries

Abstract

This study assesses effects of expenditure composition and other variables on the duration of fiscal adjustment episodes in a sample of 29 developing countries. Using survival analysis, the study finds that expenditure composition, size of the fiscal consolidation, and past performance on fiscal consolidation affect the persistence of adjustment.

Acknowledgements

The authors wish to thank Shamit Chakravarti and Erwin Tiongson for their help in preparing this paper.

Notes

¹ The countries are: Albania, Benin, Bolivia, Burkina Faso, Cambodia, Cameroon, the Central African Republic, Chad, Ethiopia, Georgia, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, the Kyrgyz Republic, Laos, Lesotho, Mali, Mauritania, Madagascar, Moldova, Mozambique, Nicaragua, Niger, São Tomé and Príncipe, Senegal, Yemen, and Zambia.

² The overall fit of the model is satisfactory. The goodness of fit indicators range between 16% and 21%. These low values are, however, highly dependent on the amount of censored information. Abstracting from these, the goodness of fit is above 80%. The model specification was also tested using the Grambsch and Therneau test, which confirms that the proportional hazard assumption is valid in the sample.

³ Results for the parametric specification are not reported here due to space limitations. They are available from the authors upon request.