When Do We Repair the Roof? Insights from Responses to Fiscal Crisis Early Warning Signals

Download or read book When Do We Repair the Roof? Insights from Responses to Fiscal Crisis Early Warning Signals written by Mr.Jiro Honda and published by International Monetary Fund. This book was released on 2018-04-06 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Should policymakers wait for fiscal crisis early warning signals before repairing the roof? We give an answer to this question by investigating the interlinkages between early warning signals for fiscal crisis, policy responses, and policy outcomes, using a broad panel of 119 countries. We find that fiscal adjsutment is a good remedy for countries that act proactively, reducing their likelihood of facing fiscal crisis by up to about 60 percent. For those waiting for wake-up calls from early-detection tools, however, fiscal adjustment may not fully prevent fiscal crisis occurrence, with the chance of fiscal crisis prevention not only smaller (about 30 percent) but also statistically not significant. These findings highlight the prominence of repairing the roof when the sun is shining, particularly in countries with weak institutions.