How Much is A Lot? Historical Evidence on the Size of Fiscal Adjustments

The sizeable fiscal consolidation required to stabilize the debt-to-GDP ratios in several countries in the aftermath of the global crisis raises a crucial question on its feasibility. To answer this question, we rely on historical evidence from a sample of 91 adjustment episodes of countries during...

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Bibliographic Details
Main Author: Escolano, Julio
Other Authors: Jaramillo, Laura, Mulas-Granados, Carlos, Terrier, G.
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2014
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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651 4 |a United States 
653 |a Fiscal stance 
653 |a Interest rates 
653 |a Public debt 
653 |a Finance 
653 |a Public finance & taxation 
653 |a Currency; Foreign exchange 
653 |a Financial services 
653 |a Debt Management 
653 |a National Deficit Surplus 
653 |a Debts, Public 
653 |a Short term interest rates 
653 |a Fiscal Policy 
653 |a Structure, Scope, and Performance of Government 
653 |a Fiscal consolidation 
653 |a Debt 
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653 |a Foreign Exchange 
653 |a Banks and Banking 
653 |a Macroeconomics 
653 |a Interest Rates: Determination, Term Structure, and Effects 
653 |a Exchange rates 
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700 1 |a Mulas-Granados, Carlos 
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520 |a The sizeable fiscal consolidation required to stabilize the debt-to-GDP ratios in several countries in the aftermath of the global crisis raises a crucial question on its feasibility. To answer this question, we rely on historical evidence from a sample of 91 adjustment episodes of countries during 1945–2012 that needed and wanted to adjust in order to stabilize debt to GDP. We find that, in at least half the cases, countries improved their cyclically adjusted primary balances by close to 5 percent of GDP. We also observe that, while countries typically make substantial efforts to stabilize debt, once this objective is achieved, they tend to ease their primary balances and do not necessarily get back to their initial lower debt-to-GDP ratio. We find that consolidations tended to be larger when the initial deficit was high and adjustment efforts were sustained over time. Fiscal adjustments also tended to be larger when accompanied by an easing of monetary conditions and, to a lesser extent, by an improvement in credit conditions