Table 6.

Fiscal capacity threshold in the relation between COVID-19 infections and credit risk.

 In this table, we report the values of the fiscal constraint measures that split our sample into subsamples of increasing sensitivity of credit risk to the spread of COVID-19 infections. In Panel A (B) we focus on specifications where the sample is split into two (three) subsamples. In column “Simple Threshold,” for each fiscal capacity variable, we report the value that separates countries into two subsamples, such that, for one of them, the relation between the coronavirus spread and credit risk is significant at the 1% level. We base this split on the specifications in columns (1)–(6) in Table 4, and the corresponding country-specific sensitivities shown in Fig. A-1 of the Internet Appendix. “Country Distribution” indicates how many countries fall above and below the threshold for each measure. For example, based on the specification reported in column (1) of Table 4, for the 15 countries with $Debt/GD{P}_i$ higher than 59.3%, $\partial \Delta CD{S}_{it}/\partial \Delta CovidCase{s}_{it}$ is statistically different from zero at the 1% level. In columns (4)–(9) of Panel A, we report the results of estimating $\Delta CD{S}_{it}=\alpha +{\beta }_L(q_i\le \gamma )\Delta CovidCase{s}_{it}+{\beta }_H(q_i>\gamma )\Delta CovidCase{s}_{it}+{\delta }^{\top }{X}_{it}+{\epsilon }_{it}$, where $q_i$ is one of the fiscal capacity measures and $\gamma$ is an endogenously determined threshold that maximizes the explanatory power of the regression. $X_{it}$ contains country- and time-varying controls as per column (1) of Table 5. We report the estimated endogenous threshold $\gamma$, parameters ${\beta }^L$ and ${\beta }^H$, and number of countries above and below the threshold, for each fiscal variable under the corresponding columns. Panel B reports similar quantities for the two-threshold specification, $\Delta CD{S}_{it}=\alpha +{\beta }_L(q_i\le {\gamma }_1)\Delta CovidCase{s}_{it}+{\beta }_M({\gamma }_2\ge q_i>{\gamma }_1)\Delta CovidCase{s}_{it}+{\beta }_H(q_i>{\gamma }_2)\Delta CovidCase{s}_{it}+{\delta }^{\top }{X}_{it}+{\epsilon }_{it}$. Further details on the variables and their sources are provided in Table A-1 of the Internet Appendix. Standard errors are heteroskedasticity-robust, and the superscripts ${}^{*}$, ${}^{**}$, and ${}^{***}$ refer to statistical significance at the $10\%$, $5\%$, and $1\%$ levels, respectively.

Panel A: One Threshold
(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)
Variable	Simple	Country	Endogenous	Country	${\beta }^L$	${\beta }^H$	Difference	Ratio
	Threshold	Distribution	Threshold	Distribution			${\beta }^H$ and ${\beta }^L$	${\beta }^H$ and ${\beta }^L$
$Debt/GD{P}_i$	59.3%	15/15	60.8%${}^{***}$	16/14	0.007	0.060${}^{***}$	0.053${}^{**}$	8.57
$Expenditures/GD{P}_i$	31.1%	13/17	39.57%${}^{***}$	24/6	0.025${}^{**}$	0.115${}^{***}$	0.090${}^{***}$	4.60
$Interest/GD{P}_i$	1.4%	15/15	2.64%${}^{***}$	27/3	0.029${}^{***}$	0.146${}^{***}$	0.117${}^{***}$	5.03
$Unemploymen{t}_i$	4.8%	15/15	6.43%${}^{***}$	23/7	0.018	0.084${}^{***}$	0.066${}^{***}$	4.67
$GDPGrowt{h}_i$	2.4%	16/14	2.67%${}^{***}$	17/13	0.057${}^{***}$	-0.010	-0.067${}^{***}$	-0.18
$Ratin{g}_i$	18.3	16/14	14.48${}^{***}$	4/26	0.101${}^{***}$	0.021${}^{*}$	-0.080${}^{***}$	0.21
$FiscallyConstraine{d}_i$	0.334	13/17	0.435${}^{***}$	22/8	0.012	0.081${}^{***}$	0.069${}^{***}$	6.75
$FiscallyConstraine{d}_i^S$	-0.082	17/13	0.428${}^{***}$	25/5	0.019${}^{*}$	0.101${}^{***}$	0.082${}^{***}$	5.32
Panel B: Two Endogenous Thresholds
Variable	Lower	Higher	Country	${\beta }^L$	${\beta }^M$	${\beta }^H$	Difference	Difference
	Threshold	Threshold	Distribution				${\beta }^M$ and ${\beta }^L$	${\beta }^H$ and ${\beta }^M$
$Debt/GD{P}_i$	60.80%${}^{***}$	104.27%${}^{***}$	16/10/4	0.009	0.051${}^{***}$	0.120${}^{***}$	0.042${}^{*}$	0.069${}^{**}$
$Expenditures/GD{P}_i$	17.32%${}^{***}$	39.57%${}^{***}$	3/21/6	-0.034${}^{**}$	0.031${}^{***}$	0.113${}^{***}$	0.065${}^{***}$	0.082${}^{***}$
$Interest/GD{P}_i$	0.31%${}^{***}$	2.64%${}^{***}$	3/24/3	-0.028	0.034${}^{***}$	0.145${}^{***}$	0.062${}^{**}$	0.111${}^{***}$
$Unemploymen{t}_i$	2.80%${}^{**}$	6.43%${}^{***}$	3/20/7	-0.024	0.021${}^{*}$	0.084${}^{***}$	0.045${}^{**}$	0.063${}^{***}$
$GDPGrowt{h}_i$	2.67%${}^{***}$	4.63%${}^{***}$	17/11/2	0.057${}^{***}$	-0.022	0.049${}^{*}$	-0.079${}^{***}$	0.071${}^{**}$
$Ratin{g}_i$	14.48${}^{***}$	17.47${}^{***}$	4/10/16	0.100${}^{***}$	-0.008	0.032${}^{**}$	-0.108${}^{***}$	0.040
$FiscallyConstraine{d}_i$	0.026${}^{***}$	0.435${}^{***}$	3/19/8	-0.048${}^{**}$	0.019${}^{*}$	0.087${}^{***}$	0.067${}^{***}$	0.068${}^{***}$
$FiscallyConstraine{d}_i^S$	0.428${}^{***}$	1.07${}^{***}$	25/3/2	0.020${}^{*}$	0.087${}^{***}$	0.169${}^{***}$	0.067${}^{***}$	0.082${}^{***}$