Abstract
This PhD thesis investigates debt sustainability and fiscal (dis)equilibrium in developing economies and small states, with a particular focus on the twin island Republic of Trinidad and Tobago. The research is segmented into three self-contained essays.The first essay focuses on the debt-to-gross domestic product (GDP) ratio and offers a critical assessment of the debt-to-GDP ratio for developing economies. The assessment suggests that the limitations of this metric outweigh the benefits, and this paper constructs alternative indicators in the form of a composite debt index (CDI) or debt sustainability index (DSI) as well as a companion debt volatility index (DVI) for Trinidad and Tobago to overcome several of the limitations identified. The paper showcases the movements in the indicators with domestic and international shocks, as well as the application of the index using the debt-growth nexus which supports a negative relationship between government debt and economic growth while the debt- to-GDP ratio yields inconclusive results.
The second essay investigates debt sustainability in two small states – Trinidad and Tobago and Mauritius – by augmenting the fiscal reaction function to include the DSI and DVI. For both countries, the DSI supports debt sustainability while traditional metrics display varying results. The paper also highlights the importance of the DVI to countries such as Trinidad and Tobago that are susceptible to large and frequent commodity price shocks.
The third essay proposes and constructs a measure for permanent government revenue in an energy-exporting economy and investigates the presence of fiscal (dis)equilibrium in Trinidad and Tobago. It reveals that fiscal equilibrium exists albeit weak and there is an asymmetric relationship between permanent government revenue and permanent government expenditure.
Overall, the thesis provides a comprehensive assessment of debt sustainability and fiscal (dis)equilibrium in Trinidad and Tobago and through detailed steps and robust estimation, it provides valuable insights into public finance that can be applied to other developing economies and small states facing similar challenges.
| Date of Award | 25 Nov 2024 |
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| Original language | English |
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| Supervisor | Scott Mahadeo (Supervisor) & Georgios Magkonis (Supervisor) |