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The Choice Of An Approach To Fiscal Consolidation

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  • IGNAT IGNATOV

    (Plovdiv University Paisii Hilendarski)

Abstract

Addressing the fiscal imbalances requires monitoring of debt dynamics. There exists a country-specific debt threshold which renders the relation economic growth – public debt negative. The fiscal consolidation is the appropriate policy to prevent the economy from surpassing the critical debt threshold. However, the nonlinear fiscal effects due to the countercyclical fiscal multiplier raise the question about the adequacy of such policy through the business cycle. The paper proposes a direct way to compute the Keynesian multiplier which can then be integrated into the framework for debt analysis. Choosing the right timing for implementation of fiscal consolidation by considering the debt-to-GDP ratio and the multiplier value is essential for the successful stabilisation of the public finances. To that end, a conceptual criterion is introduced to determine the urgency of fiscal consolidation in Bulgaria.

Suggested Citation

  • Ignat Ignatov, 2020. "The Choice Of An Approach To Fiscal Consolidation," Yearbook of the Faculty of Economics and Business Administration, Sofia University, Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria, vol. 18(1), pages 131-144, July.
    • Handle: RePEc:sko:yrbook:v:18:y:2020:i:1:p:131-144
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    File URL: http://www.feba.uni-sofia.bg/sko/yrbook/Yearbook18-07.pdf
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    References listed on IDEAS

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    6. Mr. Dirk V Muir & Miss Anke Weber, 2013. "Fiscal Multipliers in Bulgaria: Low But Still Relevant," IMF Working Papers 2013/049, International Monetary Fund.
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    8. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Fiscal Multipliers in Recession and Expansion," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 63-98, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Dimitar Zlatinov & Ilia Atanasov, 2021. "Absolute and Conditional Convergence: A Story about Convergence Clubs and Divergence in the EU," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 39-55.

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