Debt Reduction, Fiscal Adjustment, and Growth in Credit-Constrained Economies
IMF Working Papers, November 22, 2013
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- Debt Reduction, Fiscal Adjustment, and Growth in Credit-Constrained Economies
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Bibliographic details
- Authors: Emanuele Baldacci, Sanjeev Gupta, Carlos Mulas-Granados
- Published: November 22, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475516500.001
Overview
- This paper assesses the effects of fiscal consolidations associated with public debt reduction on medium-term output growth during periods of private debt deleveraging.
- Authors: Emanuele Baldacci, Sanjeev Gupta, Carlos Mulas-Granados.
- Date: November 22, 2013.
Key findings
- Analysis covers 107 countries and 79 episodes of public debt reduction driven by discretionary fiscal adjustments during 1980–2012.
- Expenditure-based, front-loaded fiscal adjustments can dampen growth when there are credit supply restrictions.
- Fiscal adjustments that are gradual and rely on a mix of revenue and expenditure measures can support output expansion while reducing public debt.
- Protecting public investment is critical for medium-term growth.
- Implementation of supply-side, productivity-enhancing reforms is important to support growth during adjustment.
Policy recommendations
- Avoid reliance on expenditure-based, front-loaded consolidation when credit supply is restricted.
- Design fiscal adjustments to be gradual and balanced between revenue and expenditure measures.
- Protect public investment during consolidation to sustain medium-term growth prospects.
- Pursue supply-side reforms that enhance productivity alongside fiscal consolidation.
Data, scope, and metrics
- Coverage: 107 countries.
- Episodes analyzed: 79 episodes of public debt reduction.
- Sample period: 1980–2012.
- Pages: 37.
- Series: Working Paper No. 2013/238.
- Issue: 238.
- Volume: 2013.
- DOI: https://doi.org/10.5089/9781475516500.001.
- Stock No: WPIEA2013238.
- ISBN: 9781475516500.
- ISSN: 1018-5941.
Source: IMF Working Paper "Debt Reduction, Fiscal Adjustment, and Growth in Credit-Constrained Economies" by Emanuele Baldacci, Sanjeev Gupta, Carlos Mulas-Granados, November 22, 2013.