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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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Escaping High Debt: The Narrow Path Ahead

Escaping High Debt: The Narrow Path Ahead

(p.455) 17 Escaping High Debt: The Narrow Path Ahead
Post-crisis Fiscal Policy

Lorenzo Forni

Marialuz Moreno Badia

The MIT Press

This chapter examines what the goal of fiscal adjustment should be and the extent to which other nonconventional measures can help in restoring and maintaining market confidence in advanced economies. It first considers the reasons why fiscal adjustment cannot be delayed before discussing the role of fiscal policy. It then explores whether other policies (beyond the fiscal arena) can support consolidation efforts. It argues that despite considerable adjustment, many countries still have a long way to go, making it essential to calibrate the pace of adjustment for the long haul. In particular, it highlights the role of central banks by implementing supportive monetary policies and ensuring the proper working of credit markets. It suggests that financial repression (with or without inflation) is unlikely to produce a large payoff as a captive domestic investor base may be difficult to achieve in a globalized world. It also assesses the privatization of nonfinancial assets and its potential to reduce the debt burden and concludes with an analysis of the implications of debt restructuring, especially if public debt is in the hands of domestic residents.

Keywords:   fiscal adjustment, market confidence, advanced economies, fiscal policy, central banks, credit markets, privatization, debt burden, debt restructuring, public debt

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