Do financial markets reward government spending efficiency?

Afonso, António; Salles, João Tovar; Venâncio, Ana

http://hdl.handle.net/10400.5/25398

Use this identifier to reference this record.

Name:	Description:	Size:	Format:
AAfonso , JTJalles e AVenancio Vol. 77, 2022.pdf		816.23 KB	Adobe PDF	Download

Send Feedback

Authors

Afonso, António

Salles, João Tovar

Venâncio, Ana

Abstract(s)

We provide a novel set of government spending efficiency scores for the OECD countries and then assess to what extent capital markets perceive government efficiency increases (decreases) as part of the determinants of sovereign rating decisions. Public efficiency scores are computed via data envelopment analysis. Then, we rely notably on ordered response models to estimate the response of sovereign ratings to changes in efficiency scores. Covering 35 OECD countries over the period 2007–2020, we find that increased public spending efficiency is rewarded by financial markets via higher sovereign debt ratings. In addition, higher inflation and government indebtedness lead to sovereign rating downgrades, while higher foreign reserves contribute to rating upgrades.

Keywords

Government Spending Efficiency DEA Panel Analysis Ordered Probit (Logit) Sovereign Ratings Rating Agencies

URI

http://hdl.handle.net/10400.5/25398

Citation

Afonso, António; João Tovar Jalles and Ana Venâncio. (2022). "Do financial markets reward government spending efficiency?". Journal of International Financial Markets, Institutions and Money, Vol. 77: 101505.