Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/148319
Authors: 
Gibert, Anna
Year of Publication: 
2016
Series/Report no.: 
DIW Discussion Papers 1623
Abstract: 
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.
Subjects: 
signaling
fiscal austerity
sovereign debt
credit ratings
JEL: 
D82
E62
F34
G24
Document Type: 
Working Paper

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