Part II. International Comparisons of Taiwan's Fiscal Space
and Government Credibility
1. Fiscal Space –How much space does Taiwan have?
Figure 6 reproduces Moody's Estimate of Fiscal Space for May 2014.
According to Moody's Analytics (2016), they "calculate fiscal space and related
concepts using econometric techniques to identify how nations' fiscal policies
have responded historically to increases in their public debt.
2
Each month our
researchers update fiscal space estimates based on Moody's Analytics' monthly
forecasts of real GDP, inflation and long-term market interest rates. The full set of
fiscal space estimates accounts for 30 advanced economies and contains nearly
50 variables." The formula of calculation is not public. Since the calculation is
based on the debt-to-GDP ratio, their fiscal space is presumably also expressed
in percentage points (ppts).
Other thing being equal, Taiwan's real GDP, inflation, and long-term market
interest rates are relatively stable, thus, we may use the fiscal space estimated by
Moody's for our explanation of the availability of fiscal policy. In Figure 6, the solid
filled green bars, except that of Taiwan, show the Moody's estimated fiscal space.
For each country in Figure 6, we added the estimated public debt ratio taken from
Figure 5. The public debt ratios are shown as the light brown bars. According to
Moody's classification, if a country has a fiscal space greater than 124%, it is in
the "safe" category. From 124% to 70%, it is in "caution". For 69% to 41%, the
country is at "Significant Risk," and for 40% to 0%, it is at "Risk." Note that, as
expected, the fiscal space shrinks as the debt ratio increases.
2
Generally speaking, as stated in the Introduction, a fiscal space should include both the government deficit or
surplus and the government debt. From this description, it appears that Moody's definition of fiscal space only
includes public debt. Thus, we only consider the public debt in this section.
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