Credit Ratings and Fiscal Responsibility

In this study, the authors investigate whether and how private, for profit credit rating agencies (CRAs) influence the fiscal policy of national governments. Fiscal policy is a key instrument for national authorities to provide key public services to the population and support a well-functioning macroeconomy. Countercyclical fiscal policy is an important tool for governments to mediate the impact of adverse economic shocks to firms and households. In countries with a pegged exchange rate—where monetary policy is geared toward maintaining the peg—fiscal policy is the most important policy tool to enhance national welfare.