Power-law distribution in the external debt-to-fiscal revenue ratios: Empirical evidence and a theoretical model - Aix-Marseille Université Access content directly
Journal Articles Journal of Macroeconomics Year : 2019

Power-law distribution in the external debt-to-fiscal revenue ratios: Empirical evidence and a theoretical model

Abstract

This paper provides evidence that the external debt-to-fiscal revenue ratio in emerging countries follows a power-law distribution. Such a distribution reflects the fact that external debt distress or debt crises correspond to extreme events that have been found to happen fairly often. 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 also show that such a distribution can be derived from a theoretical model in which uncertainty comes from tax evasion and corruption. Using the framework of an optimal stochastic growth model, we model the external debt-to-fiscal revenue ratio as a diffusion process for which the stochastic steady state distribution is derived using the properties of Itô diffusion processes.
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Dates and versions

hal-02158001 , version 1 (06-04-2021)

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Attribution - NonCommercial - NoDerivatives

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Gilles Dufrénot, Anne-Charlotte Paret. Power-law distribution in the external debt-to-fiscal revenue ratios: Empirical evidence and a theoretical model. Journal of Macroeconomics, 2019, 60, pp.341-359. ⟨10.1016/j.jmacro.2019.04.002⟩. ⟨hal-02158001⟩
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