Fiscal consolidations and public debt in Europe

Cafiso, Gianluca; Cellini, Roberto

doi:10.1007/s10797-014-9319-y

Cited by 19 publications

(7 citation statements)

References 20 publications

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“…Barrios et al (2010) also report that countries facing larger initial levels of government debt have a higher probability of pursuing successful fiscal consolidations. Cafiso and Cellini (2014) stress that although a certain debt/GDP ratio may affect the likelihood of consolidation, the opposite also is true, as consolidation affects debt dynamics. Their analysis of EU countries for the 1980-2009 period suggests that consolidation leads to lower debt/GDP values in the short-run, but not in the medium term.…”

Section: Related Literaturementioning

confidence: 98%

Decentralization and the duration of fiscal consolidation: shifting the burden across layers of government

2017

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This paper analyzes the relationship between fiscal decentralization, the duration of fiscal consolidation episodes, and their success for 17 OECD countries between 1978 and 2009. The consolidation of the general government budget appears to be of longer duration when expenditure decisions are more decentralized. We also find that transfers from higher levels of government are cut during consolidation episodes, suggesting that central governments shift the burden of consolidation towards lower tiers of government. This is especially true when the latter have little legal autonomy to raise tax revenues and have little influence over executive decisions taken at the central level. We document that this increases local governments' public debt/GDP ratios. In terms of the success of consolidation episodes, countries with greater degrees of decentralization appear to make smaller improvements in their primary balance when consolidating.

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Section: Related Literaturementioning

confidence: 98%

Decentralization and the duration of fiscal consolidation: shifting the burden across layers of government

2017

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“…For instance, 50 percentage points in Belgium (from 1994 to 2007), and up to more than 69 percentage points in Ireland (from 1994 to 2006). Cafiso and Cellini (2014) claim that fiscal consolidations are ineffective in reducing relative indebtedness. Jeong (2017) reached the same conclusion.…”

Section: Structural Solutionsrevenues and Expendituresmentioning

confidence: 99%

Southern Countries of the European Union in a Debt Trap: What Options Are on the Table?

Bednář¹

2018

IJoES

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This paper analyses the current debt situation of five Southern countries of the eurozone -Spain, France, Greece, Italy, and Portugal. By using values of key debt variables between 1996 and 2016, we show that all the countries, except Italy, are caught in a debt trap. Moreover, Greece and Portugal cannot solely rely on fiscal austerity because they would need to achieve unreasonably high budgetary surpluses in a period longer than 30 years to reduce the excessive debts. Moderate results were shown in the case of France and Spain. Nevertheless, the latter country is suffering from high real interest rates on the government debt which are currently higher than 10%. Moreover, we identified and analysed four main possibilities of dealing with the debts: debt monetization, fiscal consolidation, structural reforms, and sovereign default. The debt monetization as practised by the ECB is not an appropriate solution, its secondary effects are making the situation worse, while its primary effects are based on a short-term perspective. Appropriate fiscal consolidation seems to be based on cutting expenditures. However, the target is not achievable without structural reforms. Some authors claim, that the reforms should be mainly demand-driven, however, we show that this is not the case. Based on historical evidence, the GDP growth does not serve as the main factor of reducing indebtedness. In fact, it was significant in less than 40% of the time in the examined period. Finally, we claim that due to the political motivations, there is a lack of emphasis on real competitive advantages. A return to market principles in many cases is needed, which is in contrast with the usual growth-driven reforms. When there is an insufficient political will to carry out reforms, a proper and fully-executed sovereign default would accelerate functioning of correction mechanisms in the EMU/EU. Unfortunately, such action was not executed in the case of Greece, even though the country has de-facto bankrupted.

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“…Indeed, in the presence of multiple equilibria and self-fulfilling dynamics of debt (un)sustainability, a fully solvent government with a high level of debt might be moved to implement restrictive fiscal policies to reduce the supposed risks that a change in investors' sentiments would push the country toward the bad equilibrium. Yet, these policies may be very harmful and self-defeating, as they reduce growth and increase the debt-to-GDP ratio especially if implemented during a recession [DeLong and Summers (2012), Cafiso and Cellini (2014), House et al (2017)].…”

Section: Long-run Sustainability Of Fiscal Policymentioning

confidence: 99%

The Fallacy of Fiscal Discipline

2018

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Fiscal discipline is commonly evaluated on the basis of the debt-GDP ratio, which exhibits a stock variable measured relative to a flow variable. This way of monitoring debt solvency is arguably not consistent with transversality conditions obtained from optimizing macroeconomic frameworks. In this paper we consider a wealth-based sustainability index of government debt policy derived from a baseline endogenous growth model. We calculate the index from 1999 onwards for countries in which the after-growth real interest rate is positive, consistently with the theoretical setup. Results are radically different from common wisdom. We show that the fiscal position is sustainable for both Germany and Italy, and strongly unsustainable for both Japan and France. Policy implications of our findings are discussed.

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Fiscal consolidations and public debt in Europe

Cited by 19 publications

References 20 publications

Decentralization and the duration of fiscal consolidation: shifting the burden across layers of government

Decentralization and the duration of fiscal consolidation: shifting the burden across layers of government

Southern Countries of the European Union in a Debt Trap: What Options Are on the Table?

The Fallacy of Fiscal Discipline

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