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Post-crisis Fiscal Policy$
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Carlo Cottarelli, Philip Gerson, and Abdelhak Senhadji

Print publication date: 2014

Print ISBN-13: 9780262027182

Published to MIT Press Scholarship Online: September 2015

DOI: 10.7551/mitpress/9780262027182.001.0001

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Fiscal Outlook in Advanced and Emerging Markets

Fiscal Outlook in Advanced and Emerging Markets

(p.431) 16 Fiscal Outlook in Advanced and Emerging Markets
Post-crisis Fiscal Policy

Laura Jaramillo

Pablo Lopez-Murphy

The MIT Press

Using scenario analysis, this chapter examines the fiscal challenges facing advanced and emerging economies. The 2007 financial crisis left many countries, especially advanced economies, with a dangerous combination of high debt and high fiscal deficits. Over the medium term, even as crisis-related measures are unwound, headline deficit-to-GDP ratios are not expected to return to pre-crisis levels without fiscal adjustment measures. Although revenues are expected to recover from their current cyclical weakness, they are not projected to resume their original (pre-crisis) path because of what has been regarded as a permanent loss of potential GDP. Overall balances are expected to narrow only gradually, while debt ratios are expected to remain high over the medium term. Debt is expected to take a downward path in emerging economies, supported by relatively strong GDP growth, but this positive outlook is tempered by relatively benign assumptions regarding interest rates and growth trends. In general, all countries face important risks that could derail debt reduction, including policy implementation challenges, greater macroeconomic uncertainty, and the possibility that large contingent liabilities materialize.

Keywords:   emerging economies, financial crisis, advanced economies, debt, fiscal deficits, revenues, GDP, debt ratio, interest rates, debt reduction

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