Linkages Between Fiscal Debt Sustainability, Growth And Poverty: An Application To Tunisia

With the view to deal with the shortcoming of the existing approach regarding explicit links between public and external debt sustainability and poverty reduction, this chapter attempts to provide an empirical investigation on these links. Both the direct and indirect channels are considered to highlight the relationships between sustainable indicators, per capita growth and poverty reduction. The Tunisian case shows that real per capita GDP growth is related positively to sustainable thresholds of budget deficit and current account deficit; and negatively to the required fiscal and external adjustments; and sustainable indicators are significantly and positively related to poverty reduction indicators. Indeed, the willingness to implement fiscal and external adjustments, the flexibility in timing adjustment, and good institutional and macroeconomic conditions are crucial issues for conciliating sustainability, per capita growth and poverty reduction. However, temporary persistence of fiscal and/or external adjustment –unsustainable position – or a trade-off between external and fiscal sustainability can be a solution to reduce poverty using direct and indirect reducing poverty public expenditures.