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How long can austerity persist? The factors that sustain fiscal consolidations


  • David Lodge

    (European Central Bank)

  • Marta Rodriguez-Vives

    (European Central Bank)


To put public debt on a sustainable path, many governments face the task of enacting large fiscal consolidation followed by years of sustained primary surpluses. By estimating hazard functions for the duration of consolidations, we analyse the features of past consolidation efforts across a panel of advanced economies. Our contribution is to identify the factors that help to start and sustain consolidations, separately discussing governments’ “commitment” to the cause as well as their “capacity” for action. Our analysis suggests that longer consolidations are initiated when public debt is high, fiscal deficits are large, the interest burden heavy and long-term sovereign bond yields elevated. However, we also find that a countries’ “capacity” to change course is important. Higher initial private sector savings, a stronger external balance, a competitive position and stable financial conditions appear to provide more scope for governments to sustain longer-lasting consolidations. Once we have controlled for the initial macroeconomic conditions, there is a lesser role for governments’ commitment as reflected in factors such as the composition and the pace of the fiscal adjustment or the political cycle in explaining the duration of consolidation. However, commitment to permanent, rather than temporary, fiscal adjustment is key.

Suggested Citation

  • David Lodge & Marta Rodriguez-Vives, 2013. "How long can austerity persist? The factors that sustain fiscal consolidations," European Journal of Government and Economics, Europa Grande, vol. 2(1), pages 5-24, June.
  • Handle: RePEc:egr:ejge00:v:2:i:1:p:5-24

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    References listed on IDEAS

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    Cited by:

    1. repec:mje:mjejnl:v:13:y:2017:i:3:p:135-148 is not listed on IDEAS
    2. Jan-Hinrik Meyer-Sahling & Barbara Janta & Iveta Reinholde & Christian van Stolk, 2016. "Hidden costs of cuts: Austerity, civil service management and the motivation of public officials in Central and Eastern Europe after the crisis," European Journal of Government and Economics, Europa Grande, vol. 5(2), pages 120-137, December.
    3. repec:mje:mjejnl:v:12:y:2017:i:3:p:135-148 is not listed on IDEAS
    4. repec:kap:pubcho:v:171:y:2017:i:3:d:10.1007_s11127-017-0441-0 is not listed on IDEAS

    More about this item


    government debt; government deficit; fiscal consolidation; panel data; survival function;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus


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