ABSTRACT
After more than a decade of external liberalization policies and globalization experience, fiscal policy in developing economies is generally associated with terms like “debt sustainability,” “government solvency” and “fiscal crisis.” There is a vast literature, both theoretical and empirical, that investigates whether a given level of debt is sustainable and/or whether large and persistent deficits will eventually lead to default.2 The debt position of the public sector in developing countries is considered to be the major element in constraining persistent growth. Therefore, fiscal policy in these countries is reduced to serious fiscal austerity under the structural adjustment programs, which usually involves large cuts in (noninterest) public expenditures with the aim of achieving “stability.”3
