Achieving and sustaining fiscal consolidation

This chapter begins with an examination of the factors that condition the propensity for governments to take on debt: political and governance factors, public attitudes to debt, the role of financial markets and the general imprecision about which debt targets should be pursued. It then examines the evidence, based largely on pooled regressions over large country samples, regarding the exogenous and policy-related factors which have affected the success of fiscal consolidation efforts. The chapter goes on to examine the role of fiscal institutions: rules and autonomous agencies in fiscal retrenchment. The chapter’s final section sums up and assesses how the political economy context has changed with the financial crisis, giving some pointers as to what may be needed to re-establish a consolidation path and make it less prone to setbacks.