tailieunhanh - Public debt threshold: Empirical research in Vietnam

This paper aims to provide empirical evidence of Vietnam’s public debt threshold. The data of the annual country's public debt in the 1990 - 2010 period, the threshold model by Hansen (1996, 2000), and the OLS estimation method are employed to test threshold effects and estimate the value of the public debt threshold. | UEH-JED March 2012 | 21 Public Debt Threshold: Empirical Research in Vietnam SỬ ĐÌNH THÀNH* ABSTRACT This paper aims to provide empirical evidence of Vietnam’s public debt threshold. The data of the annual country's public debt in the 1990 - 2010 period, the threshold model by Hansen (1996, 2000), and the OLS estimation method are employed to test threshold effects and estimate the value of the public debt threshold. The research reveals that Vietnam's public debt threshold is of GDP. This finding does not imply that the government should target public debt at this level because it can never know when an unusual shock will happen. Therefore, it is advisable to keep the public debt below this threshold. The detection of the public debt threshold helps the government focus better on control of public debt sustainability. Keywords: public debt, public debt threshold, economic growth, threshold regression model 1. INTRODUCTION The global crisis and loosening fiscal policy in many countries have increased public debt rapidly. Public debt crises in some economies have made the global economy stagnant and can cause a new storm of economic recession. Public debt is starting to hit a level that produces a negative impact on economic growth. Many empirical researches have recently been performed on public debt threshold and its effect on economic growth in some parts of the world. In the early 1990s, Vietnam's public debt was very high at an average of 240% of GDP, which was regarded as insolvency. Afterward, thanks to high economic growth and the debt relief by the former Soviet Union in the late 1990s, the government regained control over public debt. However, the global crisis of 2008 accelerated the country's public debt. In the future, due to the restructuring of the economy, public debt is forecast to increase to a much higher level to supply more capital for socioeconomic development. The question arises as to which level Vietnam‟s public debt should be