Is There an Alternative Strategy for Reducing Public Debt by 2032?

  • Christophe Blot Observatoire français des conjonctures economiques - Centre de recherche en économie de Sciences Po, France
  • Marion Cochard Observatoire français des conjonctures economiques - Centre de recherche en économie de Sciences Po, France
  • Jérôme Creel Observatoire français des conjonctures economiques; ESCP Europe, France
  • Bruno Ducoudré Observatoire français des conjonctures economiques - Centre de recherche en économie de Sciences Po, France
  • Danielle Schweisguth Observatoire français des conjonctures economiques - Centre de recherche en économie de Sciences Po, France
  • Xavier Timbeau Observatoire français des conjonctures economiques - Centre de recherche en économie de Sciences Po, France

Abstract

EMU countries have engaged in fiscal consolidation since 2011. This strategy has proven to be costly in terms of GDP. This cost has been amplified by the fact that fiscal multipliers are high in time of crisis, as recently stressed by the literature. Within this context, we wonder whether there is an alternative strategy aiming at bringing back the debt ratio to 60% of GDP in 2032, meanwhile lowering output losses. To this end, we report simulations realized from a simple model describing the Eurozone and the timing for consolidation. Based on a pragmatic view of the fiscal compact, we find an alternative path for consolidation which achieves a 60% threshold for public debt over the next 20 years in most euro area countries.


Key words: Public debt, Growth, European macroeconomic policy.
JEL: E61, E62, E47.

How to Cite
Blot C., Cochard M., Creel J., Ducoudré B., Schweisguth D., & Timbeau X. (2014). Is There an Alternative Strategy for Reducing Public Debt by 2032? Panoeconomicus, 61(1), 39-57. doi:10.2298/PAN1401039B