Assessment of Public Debt Sustainability in Developing Countries, Taking Into Account the Structure of Public Spending and Intertemporal Consumer Behavior

The paper estimates the sustainability of public debt in developing countries from 1990 to 2021 drawing on fiscal response function. The author proposes the modification of the Ramsey model that considers both saving behavior of the population and the structure of government spending in terms of their influence on fiscal policy effects. The findings are tested on the example of developing countries including the Russian Federation. We verify the model's conclusions in two stages. At the first stage, based on indicators of government expenditures’ structure and savings rate, we identify country clusters using the k-means method. At the second stage, for a certain groups of countries, we econometrically estimate the so-called fiscal response function, that is, the reaction of primary budget balance to debt accumulation in the previous period. We make estimates for panel data using a fixed effects model, as well as the generalized method of moments for a dynamic panel. Based on the estimates obtained, for a group of countries similar to Russia in terms of savings rates and the share of productive expenditures in the total share of government expenditures, there is a significant positive coefficient of the reaction of the primary budget balance to changes in public debt in the previous period. Thus, fiscal sustainability is achieved for the selected group of countries at the federal level during the period under review. However, risks at a regional level may, if events develop unfavorably, have a shock effect on the federal budget that requires an additional analysis of regional debt sustainability.