Analysis of the Financial Fragility Hypothesis Applied to the Public
Sector by Means of Structural Equations
Abstract
This study analysed the effects of public debt interest and charges
through on Financial Fragility Hypothesis (FFH), in relation to
Brazilian states’ public debt. Structural equation modelling was used as
the empirical procedure. The effects of the structural model’s
constructs explained 90.2% of the Public Sector Financial Position. The
proposed model showed significance and relevance of the formative
indicators. The results show that financial fragility is caused by
excessive current spending but is aggravated by interest and
amortisation costs that exceed the Current Revenue/Current Expenditure
balance. This evidence confirms the assumptions of the FFH when applied
to the public sector.