The Effects of Fiscal Consolidations on the Debt Distribution

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

No 2025/201, IMF Working Papers from International Monetary Fund

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; Debt-at-risk; Fiscal policy; Expenditure consolidations. (search for similar items in EconPapers)
Pages: 60
Date: 2025-10-03
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