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The challenges of public deleveraging

Author

Listed:
  • Pablo Hernández de Cos

    (Banco de España)

  • David López Rodríguez

    (Banco de España)

  • Javier J. Pérez

    (Banco de España)

Abstract

The government debt-to-GDP ratios in the majority of euro area economies, including Spain, are at very high levels according to the available historical records. Economic research is conclusive in pointing out that bearing high levels of public debt ratios for an extended period of time can be damaging for economic growth. The economic literature also concludes that sustained high debt ratios create a source of vulnerability for the economy, in addition to lessening the stabilisation capacity of the public budget. Against this background, the reform of both the European Stability Pact and the Spanish budgetary stability law during the recent crisis strengthened the role of public debt in the budgetary framework. The simulations performed in this paper show that, under plausible macroeconomic assumptions, the public deleveraging process required by the Sustainability Pact for Spain will still imply a significant fiscal consolidation effort that has to be sustained over time.

Suggested Citation

  • Pablo Hernández de Cos & David López Rodríguez & Javier J. Pérez, 2018. "The challenges of public deleveraging," Occasional Papers 1803, Banco de España.
    • Handle: RePEc:bde:opaper:1803e
    as

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    References listed on IDEAS

    as
    1. Olympia Bover, 2008. "The Spanish Survey of Household Finances (EFF): description and methods of the 2005 wave," Occasional Papers 0803, Banco de España.
    2. Olympia Bover, 2008. "Oversampling of the wealthy in the Spanish Survey of Household Finances (EFF)," IFC Bulletins chapters, in: Bank for International Settlements (ed.), The IFC's contribution to the 56th ISI Session, Lisbon, August 2007, volume 28, pages 399-402, Bank for International Settlements.
    3. Olympia Bover, 2011. "The Spanish survey of household finances (eff): description and methods of the 2008 wave," Occasional Papers 1103, Banco de España.
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    More about this item

    Keywords

    public debt; fiscal consolidation; macroeconomic stabilisation;
    All these keywords.

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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