Fiscal uncertainty with donor herding and domestic debt crisis
Stellenbosch Working Paper Series No. WP07/2006Publication date: 2006
Author(s):
This study attempts to analyse how uncertainty about future government spending affects the representative individual’s lifetime utility by using a discrete inter-temporal optimizing model. Intuitively, the study shows that the overall effect of a highly positive domestic-debt repayment gap is such that the expected government spending for the next period will go down. The implication of the reduction in government spending due to uncertainty about future debt servicing is that the output and the corresponding investment for the next period will be expected to go down. This outcome is further reinforced by the higher taxes imposed on consumers in an attempt to minimise the next period’s domestic-debt repayment gap.
JEL Classification:E6, F3
Keywords:Donor herding behavior, domestic debt crisis, fiscal uncertainty, domestic-debt, repayment gap, government spending
Download: PDF (133 KB)Login
(for staff & registered students)
Upcoming Seminars
Monday 13 October 202512:10-13:10
Prof Euan Phimister: Stellenbosch Business School
Topic: "TBA"
12:10-13:10
Dr Friedrich Kreuser: Stellenbosch University
Topic: "Allocative Efficiency, Labour Shares, and Corporate Lobbying in European Manufacturing"
12:10-13:10
Prof Masashige Hamano: Waseda University
Topic: "TBA"
BER Weekly
26 Sep 2025 Free Weekly Review | Number 37 | 26 SeptemberThis report covers the key domestic and international data releases over the past week. The more comprehensive BER Weekly Review (Enhanced Version) includes a detailed discussion on the main economic events and developments over the past week, a summary of upcoming data (the week ahead) and the BER’s forecast for key economic indicators....
Read the full issue
Upcoming Seminars
Monday 13 October 202512:10-13:10
Prof Euan Phimister: Stellenbosch Business School
Topic: "TBA"
12:10-13:10
Dr Friedrich Kreuser: Stellenbosch University
Topic: "Allocative Efficiency, Labour Shares, and Corporate Lobbying in European Manufacturing"
12:10-13:10
Prof Masashige Hamano: Waseda University
Topic: "TBA"
BER Weekly
26 Sep 2025 Free Weekly Review | Number 37 | 26 SeptemberThis report covers the key domestic and international data releases over the past week. The more comprehensive BER Weekly Review (Enhanced Version) includes a detailed discussion on the main economic events and developments over the past week, a summary of upcoming data (the week ahead) and the BER’s forecast for key economic indicators....
Read the full issue