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What Will It Take to Stabilise Debt in Advanced Countries?

Author

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  • Darvas, Zsolt
  • Huertas, Gonzalo
  • Welslau, Lennard
  • Zettelmeyer, Jeromin

Abstract

This paper analyses the prospects for debt stabilisation in European Union countries, the United Kingdom, and the United States using stochastic debt sustainability analysis and estimated fiscal reaction functions. We find that (1) debt-stabilising primary balances are generally within historical precedent – well below 3 percent of GDP; (2) fiscal adjustment required to reach such balances is very high in several countries, including France, the United Kingdom and the United States; (3) the feedback coefficient from debt to the primary balance remains positive but has declined since the global financial crisis and lost statistical significance in most countries, implying that debt stabilisation is uncertain.

Suggested Citation

  • Darvas, Zsolt & Huertas, Gonzalo & Welslau, Lennard & Zettelmeyer, Jeromin, 2025. "What Will It Take to Stabilise Debt in Advanced Countries?," CEPR Discussion Papers 20929, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20929
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    File URL: https://cepr.org/publications/DP20929
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    Keywords

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    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • 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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