The Challenges of Fiscal Consolidation and Debt Reduction in the Caribbean
47 Pages Posted: 21 Dec 2012
Date Written: November 2012
This paper examines debt dynamics in the Caribbean and discusses policy options for reducing the high debt levels. Based on empirical studies of factors underlying global large debt reduction episodes, important policy lessons are drawn for the Caribbean. The analysis shows that major debt reductions are associated with strong growth and decisive and lasting fiscal consolidation efforts. Since growth in the current environment is virtually nonexistent, significant fiscal consolidation is inevitable in the region. Better control of the public wage bill, increasing public sector efficiency and tackling transfers are the obvious targets to reduce spending. On the revenue side, there is ample room to reduce tax expenditures, eliminate distortions while broadening the tax base. Fiscal consolidation needs to be complemented by a comprehensive debt reduction strategy including tax policy reforms and structural reforms to boost competiveness.
Keywords: Public debt, Caribbean, Fiscal consolidation, Debt reduction, Cross country analysis, fiscal consolidation, debt reduction, public debt, fiscal consolidation efforts, fiscal performance, fiscal adjustment, spending cuts, fiscal adjustments, primary expenditure, government spending, public spending, government expenditure, fiscal deficit, fiscal effort, fiscal efforts, fiscal position, fiscal stance, fiscal problems, foreign debt, fiscal crisis, tax policy, fiscal policy, tax base, fiscal balances, fiscal outcomes, tax revenues, fiscal space, expansionary fiscal consolidation, tax administration, fiscal surpluses, fiscal accounts, revenue collection, expenditure increases, expenditure levels,
JEL Classification: H61, H63, H68
Suggested Citation: Suggested Citation