Fiscal sustainability, closely linked to government solvency, is essential for public financing and, consequently, for ensuring the normal functioning of economic activity. In the context of rising global debt levels and higher borrowing costs, as recently highlighted by the International Monetary Fund, this paper examines the sustainability of fiscal policy across the world economy using a combination of estimation methods and tests. Adopting an approach that integrates panel data with time-series analysis for a sample of 38 countries over the past half-century, the initial conclusion is that global fiscal policy has been sustainable. However, a country-by-country analysis reveals a more nuanced reality. According to the ranking proposed in this paper, slightly more than two-thirds of the countries can be classified as exhibiting either unsustainable fiscal policies (Level C) or partial sustainability with potential risks (Level B) over the 1974–2023 period. The remainder of the sample shows evidence of fiscal sustainability (Level A); however, even within this level, the strength of this relationship varies considerably across countries, highlighting substantial heterogeneity in fiscal sustainability. By providing a comprehensive cross-country assessment based on a relatively long time series using rigorous applied techniques, this paper offers timely and policy-relevant insights for both academics and policymakers.
Ricardo Ferraz (Sat,) studied this question.