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To consolidate or not to consolidate? A multi-step analysis to assess needed fiscal sustainability

Author

Listed:
  • Afonso, António
  • Alves, José
  • Jalles, João Tovar

Abstract

We assess a country's specific need (or its absence) to implement a fiscal consolidation programme by focusing specifically on its degree of success, notably in terms of fiscal sustainability. The “need” to consolidate is based on having a primary balance above or below the debt-stabilizing primary balance (provided by the IMF's Debt Sustainability Analysis) for each country. We then link the need for and the actual (historical) existence of fiscal adjustments to their sustainability impact. Looking at a large sample of developed and developing economies over the period 1980–2018, we find that, on average, there is a higher need for consolidations in advanced economies than in developing economies. In addition, implementating a fiscal consolidation program implies an improvement in the degree of public finances' sustainability for advanced and developing economies. Finally, fiscal sustainability deteriorates when the need to implement a fiscal retrenchment arises.

Suggested Citation

  • Afonso, António & Alves, José & Jalles, João Tovar, 2022. "To consolidate or not to consolidate? A multi-step analysis to assess needed fiscal sustainability," International Economics, Elsevier, vol. 172(C), pages 106-123.
    • Handle: RePEc:eee:inteco:v:172:y:2022:i:c:p:106-123
    DOI: 10.1016/j.inteco.2022.09.005
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    Cited by:

    1. Zhiqing Yan & Zisheng Yang, 2022. "How the Marketization of Land Transfer under the Constraint of Dual Goals Affects the High-Quality Development of Urban Economy: Empirical Evidence from 278 Prefecture-Level Cities in China," Sustainability, MDPI, vol. 14(22), pages 1-23, November.
    2. Eugene Msizi Buthelezi & Phocenah Nyatanga, 2023. "Time-Varying Elasticity of Cyclically Adjusted Primary Balance and Effect of Fiscal Consolidation on Domestic Government Debt in South Africa," Economies, MDPI, vol. 11(5), pages 1-27, May.
    3. Maria Alessandra Antonelli & Andrea Salustri, 2024. "Social (de)stratification in Europe: An empirical analysis of 22 welfare systems," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2024(1), pages 37-64.
    4. Eugene Msizi Buthelezi & Phocenah Nyatanga, 2023. "Threshold of the CAPB That Can Be Attributed to Fiscal Consolidation Episodes in South Africa," Economies, MDPI, vol. 11(6), pages 1-26, May.
    5. Andrea Salustri & Maria Alessandra Antonelli & Angelo Castaldo, 2023. "Uno studio dei sistemi di protezione sociale europei tramite l’analisi delle componenti principali," Public Finance Research Papers 59, Istituto di Economia e Finanza, DSGE, Sapienza University of Rome.

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    Keywords

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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