Fiscal Consolidation: Taking Stock of Success Factors, Impact, and Design

Abstract

Surges in public debt in many countries since the COVID-19 pandemic have rekindled interest in fiscal consolidations, which often entail difficult policy choices in the face of economic and political constraints. This paper presents findings from a survey of the literature on fiscal consolidations, focusing on the pre-existing conditions, impact and design aspects of past consolidation episodes. These findings provide insight into factors that influence the chance of successful consolidations, their growth and distributional impact, the pace, phasing, duration and policy mix of reforms to mitigate the impact, and the role of fiscal institutions and capacity development in successful consolidations.

Keywords: Fiscal Consolidation, taxation, government spending, institutions, self-defeating fiscal consolidations, literature finding, spending cut, real value, expenditure measure, debt ratio, revenue reform, Inflation, Global

JEL Classification: E62, H20, H50, H60, H63, E31