Fiscal consolidation and public debt

Sakai Ando, Prachi Mishra, Nikhil Patel, Adrian Peralta-Alva and Andrea F. Presbitero

Journal of Economic Dynamics and Control, 2025, vol. 170, issue C

Abstract: High public debt is urging policy makers to consider strategies to rebuild buffers and preserve debt sustainability. We study whether—and under which conditions—fiscal consolidation is likely to be associated with a durable reduction in public debt to GDP ratios. Our findings based on a sample of advanced and emerging countries indicate that the average fiscal consolidation has a minimal effect. However, discretionary consolidations (or an increase in the primary balance to GDP beyond what is driven by business cycle considerations) implemented during economic upturns or in scenarios where they can “crowd in” private investment, are likely to be associated with sustained reductions in debt ratios.

Keywords: Public debt; Fiscal consolidation; Structural VAR; Fiscal policy (search for similar items in EconPapers)
JEL-codes: E62 H63 H68 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:170:y:2025:i:c:s0165188924001908

DOI: 10.1016/j.jedc.2024.104998

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