IMF Working Papers

Utilizing surveys of over 27,000 respondents from 13 advanced and emerging market economies, we explore how knowledge and beliefs about government debt influence expectations of tax and expenditure policy changes. Individuals systematically underestimate debt levels, especially in high-debt countries, and believe that the burden of fiscal adjustments will disproportionately affect them. Greater lifetime exposure to fiscal consolidation increases pessimism about future economic prospects, diminishes trust in government, and is associated with expectations of higher debt, future taxes increases and spending cuts, and inflation. Informing respondents about their country’s debt levels reduces expectations of tax increases in stable debt contexts and raises expectations of spending cuts in countries with rising debt with the influence of this information moderated by individuals’ past experiences with fiscal consolidation.