The benefits of fiscal consolidation in uncharted waters

Ludger Schuknecht, Philipp Rother and Jürgen Stark

No 121, Occasional Paper Series from European Central Bank

Abstract: This paper looks at fiscal sustainability and fiscal risks from a comprehensive, global perspective. It argues that the benefits of consolidation have to be re-assessed given that industrialised countries have entered uncharted waters with unsustainable public debt dynamics and enormous contingent liabilities across sectors and countries coinciding with strong, non-linear and potentially highly adverse fiscal-financial interlinkages. This suggests that there would be significant benefits from fiscal consolidation without delay and that there is a need for caution against excessive faith in fiscal engineering. JEL Classification: C32, E3, E43, E58

Keywords: consolidation; deficits; financial crisis; fiscal sustainability; public debt; tail risks (search for similar items in EconPapers)
Date: 2010-11
Note: 175489
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Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbops:2010121

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