. 2021 May 11;143(3):1251–1274. doi: 10.1016/j.jfineco.2021.05.009

Table 4.

COVID-19 infections, credit risk, and fiscal capacity.

In this table, we report the estimated coefficients from the panel regression analysis aimed at investigating the determinants of the relation between daily percentage changes in COVID-19 infections for country- $i$ on day– $t$ , $Δ C O V I D C a s e s_{i t}$ , and sovereign CDS spreads, $Δ C D S_{i t}$ . We interact the variable of interest, $Δ C O V I D C a s e s_{i t}$ , with indicators of the fiscal health of a country: gross central government debt, $D e b t / G D P_{i}$ ; government expenditures, $E x p e n d i t u r e s / G D P_{i}$ ; and interest payments, $I n t e r e s t / G D P_{i}$ , all measured as a fraction of GDP. We complement the analysis considering economic indicators, such as the country’s unemployment rate, $U n e m p l o y m e n t_{i}$ , and GDP growth, $G D P G r o w t h_{i}$ . Finally, we consider the effect of cross-sectional differences in credit rating, $R a t i n g_{i}$ . Rather than using the values of the indicators, we use their rank in the sample of countries normalized to one, i.e., the country with the smallest expenditures relative to GDP will have $E x p e n d i t u r e s / G D P_{i} = 0$ , while the country with the largest expenditures will have $E x p e n d i t u r e s / G D P_{i} = 1$ . Since rating is already a rank variable, we simply normalize it, so that the country with the highest credit rating has $R a t i n g_{i} = 1$ . We also include country-specific time-varying explanatory variables, such as the return in the country’s stock market index, $E q u i t y_{i t}$ , and foreign exchange rate return, $F X_{i t}$ . Further details on the variables and their sources are provided in Table A-1 of the Internet Appendix. All specifications include country- and day-fixed effects, and standard errors are two-way clustered at the country- and day-level. The superscripts $^{*}$ , $^{* *}$ , and $^{* * *}$ refer to statistical significance at the $10 %$ , $5 %$ , and $1 %$ levels, respectively.

	(1)	(2)	(3)	(4)	(5)	(6)
	$Δ C D S_{i t}$	$Δ C D S_{i t}$	$Δ C D S_{i t}$	$Δ C D S_{i t}$	$Δ C D S_{i t}$	$Δ C D S_{i t}$
$Δ C O V I D C a s e s_{i t}$	-0.033	-0.002	-0.024	-0.028	0.069 $^{* * *}$	0.089 $^{* *}$
	(-1.376)	(-0.078)	(-1.151)	(-1.178)	(2.848)	(2.322)
$Δ C O V I D C a s e s_{i t}$ $\times$ $D e b t / G D P_{i t}$	0.098 $^{* *}$
	(2.233)
$Δ C O V I D C a s e s_{i t}$ $\times$ $E x p e n d i t u r e s / G D P_{i}$		0.044
		(1.007)
$Δ C O V I D C a s e s_{i t}$ $\times$ $I n t e r e s t / G D P_{i}$			0.080 $^{*}$
			(1.889)
$Δ C O V I D C a s e s_{i t}$ $\times$ $U n e m p l o y m e n t_{i}$				0.084 $^{* *}$
				(2.283)
$Δ C O V I D C a s e s_{i t}$ $\times$ $G D P G r o w t h_{i}$					-0.106 $^{* *}$
					(-2.097)
$Δ C O V I D C a s e s_{i t}$ $\times$ $R a t i n g_{i}$						-0.090 $^{*}$
						(-1.973)
$E q u i t y_{i t}$	-0.356 $^{* * *}$	-0.362 $^{* * *}$	-0.362 $^{* * *}$	-0.360 $^{* * *}$	-0.359 $^{* * *}$	-0.362 $^{* * *}$
	(-3.356)	(-3.295)	(-3.368)	(-3.296)	(-3.327)	(-3.383)
$F X_{i t}$	-0.014	-0.046	-0.040	0.009	-0.047	-0.030
	(-0.027)	(-0.091)	(-0.080)	(0.017)	(-0.094)	(-0.060)

Adj. R $^{2}$	0.338	0.331	0.336	0.336	0.339	0.334
Obs	2793	2793	2793	2793	2793	2793
# Countries	30	30	30	30	30	30
Time FE	Yes	Yes	Yes	Yes	Yes	Yes
Country FE	Yes	Yes	Yes	Yes	Yes	Yes