The Effects of Fiscal Consolidations on the Debt Distribution

Francesco Frangiamore, Davide Furceri, Domenico Giannone, Faizaan Kisat and Pietro Pizzuto

No 20732, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper estimates the effects of fiscal expenditure consolidations on the entire distribution of public debt-to-GDP for an unbalanced sample of 192 countries over the period 1991-2021. Employing panel location-scale models, we show that government expenditure cuts significantly lower the location (average) of the future debt-to-GDP distribution and its scale (variance), thus also implying a reduction in the uncertainty surrounding public debt. Consequently, we uncover a downward sloping trend in the effects of government expenditure consolidations across the quantiles of the debt-to-GDP distribution. These effects persist up to a 4-year forecast horizon, with the highest reduction occurring on the right tail of the debt-to-GDP distribution, defined as debt-at-risk. We also show that fiscal expenditure consolidations are more effective in reducing debt-to-GDP when the debt levels are higher and when countries adopt a fiscal rule.

Keywords: Public debt; Fiscal consolidation strategy (search for similar items in EconPapers)
JEL-codes: E62 (search for similar items in EconPapers)
Date: 2025-10
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Working Paper: The Effects of Fiscal Consolidations on the Debt Distribution (2025)
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