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Debt reduction, fiscal adjustment, and growth in credit-constrained economies

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Baldacci, Emmanuel and Gupta, Sanjeev and Mulas Granados, Carlos (2015) Debt reduction, fiscal adjustment, and growth in credit-constrained economies. Journal of Applied Economics, 18 (1). pp. 71-97. ISSN 1667-6726

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Official URL: http://dx.doi.org/10.1016/S1514-0326(15)30004-0



Abstract

This paper assesses the effects of fiscal consolidations associated with public debt reduction on medium-term output growth during periods of private debt deleveraging. The analysis covers 107 countries and 79 episodes of public debt reduction driven by discretionary fiscal adjustments during the 1980-2012 period. It shows that expenditure-based, front-loaded fiscal adjustments can dampen growth when there are credit supply restrictions. Instead, fiscal adjustments that are gradual and rely on a mix of revenue and expenditure measures can support output expansion, while reducing public debt. In this context, protecting public investment is critical for medium-term growth, as is the implementation of supply-side, productivity-enhancing reforms.


Item Type:Article
Uncontrolled Keywords:Debt consolidation; Fiscal adjustments; Output growth; Credit constraints: Bank deleveraging
Subjects:Social sciences > Economics > Economic development
JEL:H30, E62
ID Code:60498
Deposited On:14 May 2020 10:12
Last Modified:14 May 2020 11:22

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