Elva Bova, Marta Ruiz Arranz, Frederik Toscani, Elif Ture, 15 March 2016

A contingent fiscal liability is a potential obligation for the government that depends on a possible future event. Understanding the origin, size, and triggers of these liabilities is increasingly important. This column presents new findings using a novel dataset of 200 episodes involving the materialisation of contingent liabilities. The fiscal costs of the liabilities are large, at 6% of GDP on average. Importantly, countries with stronger institutions and lower growth volatility tend to suffer less from contingent liability realisations. 

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