Economics, Econometrics and Finance
3 years ago

Emerging economies face fiscal turmoil due to international borrowing costs.

SSRN Electronic Journal
"When it rains, it pours": fiscal policy, credit constraints and business cycles in emerging and developed economies
Krastina Dzhambova

Paper Summary

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Fiscal policy in both rich and poor countries tends to move in sync with economic conditions. When borrowing costs go up, emerging economies cut back on spending more than developed countries, making their fiscal policy more tied to the ups and downs of the economy. This happens because emerging economies are more sensitive to changes in international borrowing costs.