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Government Debt, Dollarization, and the Output Effect of Fiscal Consolidations Policy Note / Ali Çufadar & Fatih Özatay 
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31/10/2017 - Viewed 355 times

The output effect of fiscal consolidations when government debt is at high levels has been at the core of economic policy discussions in the aftermath of the global financial crisis. This note shows that what matters for the effect of fiscal consolidation on output is not only the level of government debt but also the level of risk that stems from it. The currency composition of debt and the spillover effects of risk on the corporate sector are critical as well.

Introduction

When debt of the government is rather high and economy is in recession, does fiscal consolidation mitigate recessionary forces? Or does it lead to output collapse as has been widely stated during the recent European debt crisis? These questions have been at the core of economic policy discussions since the global financial crisis. To contribute to this discussion we report results of a recent study that focuses on the experience of large emerging market economies (EMEs) in the G-20 over the past two decades (Çufadar and Özatay, 2017).

You may read policy note from here.

You may read "Sovereign risk, public debt, dollarization, and the output effects of fiscal austerity" article from here.


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