The Challenge of Debt Reduction during Fiscal Consolidation

March 8, 2013

Preview Citation

Format: Chicago

Luc Eyraud, and Anke Weber. The Challenge of Debt Reduction during Fiscal Consolidation, (USA: International Monetary Fund, 2013) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Studies suggest that fiscal multipliers are currently high in many advanced economies. One important implication is that fiscal tightening could raise the debt ratio in the short term, as fiscal gains are partly wiped out by the decline in output. Although this effect is not long-lasting and debt eventually declines, it could be an issue if financial markets focus on the short-term behavior of the debt ratio, or if country authorities engage in repeated rounds of tightening in an effort to get the debt ratio to converge to the official target. We discuss whether these problems could be addressed by setting and monitoring debt targets in cyclically-adjusted terms.

Subject: Fiscal consolidation, Fiscal multipliers, Fiscal policy, Fiscal stance, Public debt

Keywords: Debt ratio, Debt ratio decline, Debt ratio fluctuation, Debt ratio increase, Debt ratio response, Europe, Fiscal consolidation, Fiscal multipliers, Fiscal stance, Global, Public debt, Public debt debt ratio, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/067
Stock No:

WPIEA2013067
ISBN:

9781475553864
ISSN:

1018-5941

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