Gilles Dufrenot (GREQAM)
mardi 24 mai 2016
Power-law in Latin American countries' external debt-to-fiscal revenue ratio: empirical evidence and a theoretical model
Abstract: This paper provides evidence that the external debt-to-fiscal revenue ratio of the Latin American countries has a power-law distribution. Such a distribution reflects the fact debt distress or debt crises are extreme events (relative to normal times) that have been found to happen fairly often. Moreover, the drivers of debt in normal times are also those causing debt crises. We formally test the hypothesis of a power-law, going further than the usual visual inspection of the distribution of the variable of interest on a doubly logarithmic scale. We show that such a distribution can be derived from a theoretical model in which the uncertainty is intrinsic to the functioning of the economic system and stems from both tax evasion and corruption behaviors. Using the framework of an optimal stochastic growth model, we derive the asymptotic steady state distribution of the ratio of a variable that drives the debt-to-fiscal revenue ratio.