Successful Concepts of Post-Crisis Public Debt Reduction Policy

The paper analyses episodes of successful reduction of public debt in OECD countries. From 2008 to 2018, we identify 19 episodes of fiscal consolidation, of which five resulted in a significant debt reduction. The most successful post-crisis concept is extensive, long-term consolidations and consolidations started with excessive initial debt. Spending cut consolidations have not been significantly more successful than the tax increase approach. After the inclusion of projections for 2019 and 2020, we identified 18 episodes of significant debt reduction, of which nine were associated with previous fiscal consolidation and nine were not. In the years after successful consolidation, the primary balance surpluses were more effective in debt reduction than the macroeconomic environment. Economic growth and interest rates in the significant debt reduction episodes associated with previous consolidation were lower than those without that connection. Countries which have achieved significant debt reduction without previous consolidation have done so primarily by better macro development and profited from a lower level of indebtedness.