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

Antonio Afonso, José Alves and Joao Jalles

International Economics, 2022, issue 172, 106-123

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

Keywords: Fiscal consolidations; Cyclically-adjusted primary balance; Sustainability; Panel data; Time-varying (search for similar items in EconPapers)
JEL-codes: C23 E21 E62 H5 H62 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: To consolidate or not to consolidate? A multi-step analysis to assess needed fiscal sustainability (2022)
Working Paper: To Consolidate or Not to Consolidate? A Multi-Step Analysis to Assess Needed Fiscal Sustainability (2022)
Working Paper: To consolidate or not to consolidate? A multi-step analysis to assess needed fiscal sustainability (2022)
Working Paper: To consolidate or not to consolidate? A multi-step analysis to assess needed fiscal sustainability (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepiie:2022-q3-172-7

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