Europe’s Debt (Un)Sustainability: Looking Through Bohn’s Magnifying Glass
IMF Working Papers, April 4, 2025
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- Europe’s Debt (Un)Sustainability: Looking Through Bohn’s Magnifying Glass
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Bibliographic details
- Authors: Aleš Bulíř, Khyati Chauhan
- Published: April 4, 2025
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229007849.001
Key findings
- No large European countries and only few small ones have met the so-called Bohn rule during the past 40 years or so.
- The Bohn rule specifies that past increases of public debt need to be systematically compensated with current and future fiscal surpluses to stabilize debt at some steady-state level.
- Post-1980 European fiscal primary balances have been driven by spending growth and consumption smoothing.
- The results change little between periods before and after the global financial crisis.
Authors and publication
- By Ales Bulir, Khyati Chauhan
- April 4, 2025
- IMF Working Papers 2025, 070 (2025)
- Working Paper No. 2025/070
- Pages: 50
- Volume: 2025
- Issue: 070
- DOI: https://doi.org/10.5089/9798229007849.001
- Stock No: WPIEA2025070
- ISBN: 9798229007849
- ISSN: 1018-5941
Subject matter and keywords
- Subject: Expenditure, Financial crises, Fiscal policy, Fiscal stance, Global financial crisis of 2008-2009, Output gap, Production, Public debt
- Keywords: ales Bulír, B. data transformation, debt sustainability exercise, estimates of the Bohn rule, Europe, Fiscal stance, Fiscal sustainability, Global, Global financial crisis of 2008-2009, magnifying glass, Output gap, public debt, the Bohn rule
Analytical emphasis
- Fiscal sustainability assessment centered on testing the empirical validity of the Bohn rule across European countries over roughly a 40-year span.
- Empirical results emphasize the dominant roles of spending growth and consumption smoothing in shaping primary fiscal balances, rather than systematic fiscal responses to past debt increases as prescribed by the Bohn rule.
- Comparison across subperiods indicates stability of these findings before and after the global financial crisis.
Implications (inferred from findings)
- The prevalent absence of Bohn-rule-consistent fiscal reactions in large European countries suggests limited automatic stabilizing fiscal responses that systematically offset past debt increases through sustained surpluses.
- Policy efforts focused on controlling spending growth and addressing consumption-smoothing behaviors could be central to improving primary balance dynamics and debt trajectories.
- Little change across the global financial crisis boundary implies that structural fiscal behaviors, rather than crisis-era policy shifts, underlie the observed patterns.
Source: IMF Working Paper “Europe’s Debt (Un)Sustainability: Looking Through Bohn’s Magnifying Glass” by Ales Bulir and Khyati Chauhan, April 4, 2025.
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- Working Paper