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

Antonio Afonso, José Alves and Joao Jalles

No 2022/0217, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: We assess the specific need (or its absence) of a country to implement a fiscal consolidation programme by focusing specifically on their 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 economics over the period 1980-2018, we find that, on average, there is a higher need of consolidations in advanced economies than in developing economies. In addition, the implementation of a fiscal consolidation program implies an improvement in the degree of public finances´ sustainability, for in 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: 2022-03
New Economics Papers: this item is included in nep-ban and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: To consolidate or not to consolidate? A multi-step analysis to assess needed fiscal sustainability (2022)
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)
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