{
  "title": "Budget Consolidation: Short-Term Pain and Long-Term Gain",
  "publication": "IMF Working Papers, July 1, 2010",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/budget-consolidation-short-term-pain-and-long-term-gain-24044",
  "canonical": "https://www.imf.org/en/publications/wp/issues/2016/12/31/budget-consolidation-short-term-pain-and-long-term-gain-24044",
  "overlayPath": "/en/publications/wp/issues/2016/12/31/budget-consolidation-short-term-pain-and-long-term-gain-24044/index.md",
  "summary": "The paper evaluates the costs and benefits of fiscal consolidation using simulations based on the IMFs global DSGE model GIMF. Over the longer run, well-targeted permanent reductions in budget deficits lead to a considerable increase in both the growth rate and the level of output.",
  "sections": [
    {
      "heading": "Overview and central findings",
      "content": "- The paper evaluates the costs and benefits of fiscal consolidation using simulations based on the IMF’s global DSGE model GIMF.\n- Over the longer run, well-targeted permanent reductions in budget deficits lead to a considerable increase in both the growth rate and the level of output.\n- The gains may be enhanced by shifting some of the tax burden from incomes to consumption.\n- In the short run, credibility plays a crucial role in determining the size of initial output losses.\n- Global current account imbalances would be significantly reduced if budget consolidation was larger in countries with current account deficits."
    },
    {
      "heading": "Policy-relevant implications and recommendations",
      "content": "- Implement well-targeted permanent deficit reductions to raise both the growth rate and the level of output in the longer run.\n- Consider shifting part of the tax burden from incomes to consumption to enhance long-run gains from consolidation.\n- Prioritize credibility of fiscal consolidation plans to minimize short-run output losses.\n- Encourage larger consolidation efforts in countries with current account deficits to materially reduce global current account imbalances."
    },
    {
      "heading": "Thematic tags and keywords",
      "content": "- Subject: Consumption, Consumption taxes, Fiscal consolidation, Public debt, Real interest rates\n- Keywords: current account, fiscal policy, present discounted value, real interest rate, WP\n\nIMF Working Paper: \"Budget Consolidation: Short-Term Pain and Long-Term Gain\", Douglas Laxton, Susanna Mursula, Kevin Clinton, and Michael Kumhof; Working Paper No. 2010/163; DOI: https://doi.org/10.5089/9781455201464.001.\n\n---\n\n Content in this bundle\n\n- wp10163\n  - wp10163 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp10163 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/budget-consolidation-short-term-pain-and-long-term-gain-24044"
    }
  ],
  "bullets": [
    "[Markdown version](/en/publications/wp/issues/2016/12/31/budget-consolidation-short-term-pain-and-long-term-gain-24044/index.md)",
    "[Structured JSON version](/en/publications/wp/issues/2016/12/31/budget-consolidation-short-term-pain-and-long-term-gain-24044/index.json)",
    "[Bundle manifest](/en/publications/wp/issues/2016/12/31/budget-consolidation-short-term-pain-and-long-term-gain-24044/bundle-manifest.json)",
    "Authors: Douglas Laxton, Susanna Mursula, Kevin Clinton, Michael Kumhof",
    "Published: July 1, 2010",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781455201464.001",
    "The paper evaluates the costs and benefits of fiscal consolidation using simulations based on the IMF’s global DSGE model GIMF.",
    "Over the longer run, well-targeted permanent reductions in budget deficits lead to a considerable increase in both the growth rate and the level of output.",
    "The gains may be enhanced by shifting some of the tax burden from incomes to consumption.",
    "In the short run, credibility plays a crucial role in determining the size of initial output losses.",
    "Global current account imbalances would be significantly reduced if budget consolidation was larger in countries with current account deficits.",
    "Implement well-targeted permanent deficit reductions to raise both the growth rate and the level of output in the longer run.",
    "Consider shifting part of the tax burden from incomes to consumption to enhance long-run gains from consolidation.",
    "Prioritize credibility of fiscal consolidation plans to minimize short-run output losses.",
    "Encourage larger consolidation efforts in countries with current account deficits to materially reduce global current account imbalances.",
    "Subject: Consumption, Consumption taxes, Fiscal consolidation, Public debt, Real interest rates",
    "Keywords: current account, fiscal policy, present discounted value, real interest rate, WP",
    "**_wp10163**"
  ],
  "related": [
    {
      "title": "_wp10163",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10163.pdf",
      "summary": {
        "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10163.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2010/_wp10163.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/publications/wp/issues/2016/12/31/budget-consolidation-short-term-pain-and-long-term-gain-24044/index.md",
    "json": "/en/publications/wp/issues/2016/12/31/budget-consolidation-short-term-pain-and-long-term-gain-24044/index.json",
    "bundleManifest": "/en/publications/wp/issues/2016/12/31/budget-consolidation-short-term-pain-and-long-term-gain-24044/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-17T10:08:10.637Z"
}