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The role of sovereign credit ratings in fiscal discipline

Duygun, Meryem; Ozturk, Huseyin; Shaban, Mohamed

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Authors

MERYEM DUYGUN Meryem.Duygun@nottingham.ac.uk
Aviva Chair in Risk and Insurance

Huseyin Ozturk

Mohamed Shaban



Abstract

This paper investigates several aspects of the relationship between sovereign credit ratings and fiscal discipline. The analysis of over one thousand country–year observations for 93 countries during the 1999–2010 period reveals that a country’s debt level is likely to increase with higher ratings, confirming the existence of pro–cyclicality and path dependence of ratings. In addition, the study finds no evidence to support the theory of Political Business Cycle, which implies that political ambitions may lead to fiscal worsening following a rating upgrade. The study findings further demonstrate that institutional quality is an important factor in the ratings–fiscal discipline nexus.

Citation

Duygun, M., Ozturk, H., & Shaban, M. (in press). The role of sovereign credit ratings in fiscal discipline. Emerging Markets Review, 27, https://doi.org/10.1016/j.ememar.2016.05.002

Journal Article Type Article
Acceptance Date May 10, 2016
Online Publication Date May 24, 2016
Deposit Date Dec 1, 2016
Publicly Available Date Dec 1, 2016
Journal Emerging Markets Review
Print ISSN 1566-0141
Electronic ISSN 1566-0141
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 27
DOI https://doi.org/10.1016/j.ememar.2016.05.002
Public URL https://nottingham-repository.worktribe.com/output/788791
Publisher URL http://www.sciencedirect.com/science/article/pii/S156601411630019X
Contract Date Dec 1, 2016

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