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Fiscal consolidation and public debt

Author

Listed:
  • Ando, Sakai
  • Mishra, Prachi
  • Patel, Nikhil
  • Peralta-Alva, Adrian
  • Presbitero, Andrea F.

Abstract

High public debt is urging policy makers to consider strategies to rebuild buffers and preserve debt sustainability. We study whether—and under which conditions—fiscal consolidation is likely to be associated with a durable reduction in public debt to GDP ratios. Our findings based on a sample of advanced and emerging countries indicate that the average fiscal consolidation has a minimal effect. However, discretionary consolidations (or an increase in the primary balance to GDP beyond what is driven by business cycle considerations) implemented during economic upturns or in scenarios where they can “crowd in” private investment, are likely to be associated with sustained reductions in debt ratios.

Suggested Citation

  • Ando, Sakai & Mishra, Prachi & Patel, Nikhil & Peralta-Alva, Adrian & Presbitero, Andrea F., 2025. "Fiscal consolidation and public debt," Journal of Economic Dynamics and Control, Elsevier, vol. 170(C).
    • Handle: RePEc:eee:dyncon:v:170:y:2025:i:c:s0165188924001908
    DOI: 10.1016/j.jedc.2024.104998
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    Keywords

    Public debt; Fiscal consolidation; Structural VAR; Fiscal policy;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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