Fiscal consolidation and the sustainability of public debt in the GIPSI countries

Abstract

Abstract Correcting fiscal imbalances and reducing public debt is a priority among the peripheral countries of the Eurozone (the so‐called GIPSI countries). However, there is no consensus about which is the most appropriate policy mix to achieve it: the debate on fiscal austerity vs. growth is bitter now among researchers and international policymakers. In this paper we review the effects of different fiscal consolidation policies on macroeconomic performance. We also provide an empirical analysis that complements the recent study performed by the IMF regarding the sustainability of public debt for GIPSI countries in different scenarios of growth, inflation, and fiscal and monetary policies. Finally, a policy mix is offered that would be suitable for these five countries to achieve both fiscal consolidation and economic growth.