%0 Journal Article
%A Baldacci, Emmanuel
%A Gupta, Sanjeev
%A Mulas Granados, Carlos
%T Debt reduction, fiscal adjustment, and growth in credit-constrained economies
%D 2015
%@ 1667-6726
%U https://hdl.handle.net/20.500.14352/23801
%X 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.
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