Hidden Overhang of Domestic Debt and Its Role in the This-Time-Is-Different Syndrome: An Empirical Contingent Liabilities Model

Ozkaya A.

EMERGING MARKETS FINANCE AND TRADE, vol.50, no.4, pp.73-94, 2014 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 50 Issue: 4
  • Publication Date: 2014
  • Doi Number: 10.2753/ree1540-496x500405
  • Journal Name: EMERGING MARKETS FINANCE AND TRADE
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.73-94
  • Keywords: chaotic dynamics, contingent liabilities, debt intolerance, hidden public debt, this-time-is-different syndrome, Turkey, FISCAL RULES, LYAPUNOV EXPONENTS, TURKEY, DEFICITS, SERIES, CRISIS, BAD, EU
  • Galatasaray University Affiliated: Yes

Abstract

The recent studies in public finance literature open an exciting research area on hidden overhang of domestic public debt and creative accounting. In this study, I identify hidden public debts in Turkey. I then develop a dynamical model that takes as given the stock of contingent liabilities generated by lending/borrowing relationships among public entities and looks for the debt (in)tolerance of government to liquidate it in finite periods. Last, I introduce a general empirical methodology to analyze the role of overborrowing in the this-time-is-different syndrome and test model outcome against data for hidden debts in Turkey's postliberalization period (1989-2010).