TY - JOUR
T1 - To consolidate or not to consolidate?
T2 - A multi-step analysis to assess needed fiscal sustainability
AU - Afonso, António
AU - Alves, José
AU - Jalles, João Tovar
N1 - Funding Information:
* We thank Bettina Bökemeier and participants at the ERMEES Macroeconomics Workshop 3-11-2021, Strasbourg, for useful comments. This work was supported by the FCT ( Fundação para a Ciência e a Tecnologia ) [grant number UIDB/05069/2020 ]. The opinions expressed herein are those of the authors and do not necessarily reflect those of the authors' employers. Any remaining errors are the authors' sole responsibility.
Publisher Copyright:
© 2022 CEPII (Centre d'Etudes Prospectives et d'Informations Internationales), a center for research and expertise on the world economy
PY - 2022/12
Y1 - 2022/12
N2 - We assess a country's specific need (or its absence) to implement a fiscal consolidation programme by focusing specifically on its 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 economies over the period 1980–2018, we find that, on average, there is a higher need for consolidations in advanced economies than in developing economies. In addition, implementating a fiscal consolidation program implies an improvement in the degree of public finances' sustainability for advanced and developing economies. Finally, fiscal sustainability deteriorates when the need to implement a fiscal retrenchment arises.
AB - We assess a country's specific need (or its absence) to implement a fiscal consolidation programme by focusing specifically on its 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 economies over the period 1980–2018, we find that, on average, there is a higher need for consolidations in advanced economies than in developing economies. In addition, implementating a fiscal consolidation program implies an improvement in the degree of public finances' sustainability for advanced and developing economies. Finally, fiscal sustainability deteriorates when the need to implement a fiscal retrenchment arises.
KW - Cyclically-adjusted primary balance
KW - Fiscal consolidations
KW - Panel data
KW - Sustainability
KW - Time-varying
UR - http://www.scopus.com/inward/record.url?scp=85138626059&partnerID=8YFLogxK
U2 - 10.1016/j.inteco.2022.09.005
DO - 10.1016/j.inteco.2022.09.005
M3 - Article
AN - SCOPUS:85138626059
SN - 2110-7017
VL - 172
SP - 106
EP - 123
JO - International Economics
JF - International Economics
ER -