Discussion Papers 1623, 50 S.
Anna Gibert
2016
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Publsihed in: European Economic Review 144.2022, 104090
I build a model where creditworthy countries may use fiscal austerity to communicate their ability to repay sovereign debt and show that the signaling channel is active only for high levels of asymmetric information. The model generates a negative association between the amount of public information, provided by the rating agencies, and fiscal tightness. Informed by the model predictions, I build a model where creditworthy countries may use fiscal austerity to communicate their ability to repay sovereign debt and show that the signaling channel is active only for high levels of asymmetric information. The model generates a negative association between the amount of public information, provided by the rating agencies, and fiscal tightness. Informed by the model predictions, I perform an empirical investigation based on a panel of 58 OECD and emerging market economies since 1980 and find evidence of this signaling channel.
JEL-Classification: D82;E62;F34;G24
Keywords: Signaling, fiscal austerity, sovereign debt, credit ratings
Frei zugängliche Version: (econstor)
http://hdl.handle.net/10419/148319