European Parliament Library

The Challenge of Debt Reduction during Fiscal Consolidation, Luc Eyraud, Anke Weber

Studies suggest that fiscal multipliers are currently high in many advanced economies. One important implication is that fiscal tightening could raise the debt ratio in the short term, as fiscal gains are partly wiped out by the decline in output. Although this effect is not long-lasting and debt eventually declines, it could be an issue if financial markets focus on the short-term behavior of the debt ratio, or if country authorities engage in repeated rounds of tightening in an effort to get the debt ratio to converge to the official target. We discuss whether these problems could be addressed by setting and monitoring debt targets in cyclically-adjusted terms
Table Of Contents
Cover; The Challenge of Debt Reduction during Fiscal Consolidation; Abstract; I. INTRODUCTION; II. FISCAL CONSOLIDATION AND DEBT REDUCTION: THE ANALYTICAL FRAMEWORK; A. Literature Review; B. Some Unpleasant Fiscal Arithmetic; C. Fiscal Multipliers in the Current Environment; III. SIMULATION RESULTS; A. Short-Term and Medium-Term Impacts of Fiscal Consolidation on Debt; B. Implications of Repeated Tightening and Persistent Multipliers; IV. EMPIRICAL EVIDENCE; A. Descriptive Analysis; B. Econometric Estimation; V. IMPLICATIONS FOR THE DEBT RATIO INDICATOR; A. Cyclicality of Nominal Debt Ratios
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (38 p.)
Specific Material Designation
Form Of Item

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