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

Author

Listed:
  • Antonio Afonso

    (Universidade de Lisboa)

  • Jose Alves

    (Universidade de Lisboa)

  • Joao Tovar Jalles

    (Universidade de Lisboa)

Abstract

We assess the specific need (or its absence) of a country to implement a fiscal consolidation programme by focusing specifically on their 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 economics over the period 1980-2018, we find that, on average, there is a higher need of consolidations in advanced economies than in developing economies. In addition, the implementation of a fiscal consolidation program implies an improvement in the degree of public finances´ sustainability, for both advanced and developing economies. Finally, fiscal sustainability deteriorates when the need to implement a fiscal retrenchment arises.

Suggested Citation

  • Antonio Afonso & Jose Alves & Joao Tovar Jalles, 2022. "To consolidate or not to consolidate? A multi-step analysis to assess needed fiscal sustainability," Working Papers 2022.02, International Network for Economic Research - INFER.
    • Handle: RePEc:inf:wpaper:2022.02
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    References listed on IDEAS

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    Cited by:

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    2. 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.
    3. 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.
    4. 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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    More about this item

    Keywords

    fiscal consolidations; cyclically-adjusted primary balance; sustainability; panel data; time-varying;
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    JEL classification:

    • H - Public Economics

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