The challenges of public deleveraging

Pablo Hernández de Cos, David López Rodríguez () and Javier Pérez
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David López Rodríguez: Banco de España

No 1803, Occasional Papers from Banco de España

Abstract: The government debt-to-GDP ratios in the majority of euro area economies, including Spain, are at very high levels according to the available historical records. Economic research is conclusive in pointing out that bearing high levels of public debt ratios for an extended period of time can be damaging for economic growth. The economic literature also concludes that sustained high debt ratios create a source of vulnerability for the economy, in addition to lessening the stabilisation capacity of the public budget. Against this background, the reform of both the European Stability Pact and the Spanish budgetary stability law during the recent crisis strengthened the role of public debt in the budgetary framework. The simulations performed in this paper show that, under plausible macroeconomic assumptions, the public deleveraging process required by the Sustainability Pact for Spain will still imply a significant fiscal consolidation effort that has to be sustained over time.

Keywords: public debt; fiscal consolidation; macroeconomic stabilisation (search for similar items in EconPapers)
JEL-codes: E61 E62 H12 H63 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2018-03
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Persistent link: https://EconPapers.repec.org/RePEc:bde:opaper:1803e

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