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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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Current Debt Crisis in Historical Perspective

Current Debt Crisis in Historical Perspective

(p.161) 7 Current Debt Crisis in Historical Perspective
Post-crisis Fiscal Policy

S. Ali Abbas

Nazim Belhocine

Asmaa El-Ganainy

Anke Weber

The MIT Press

This chapter examines the ongoing debt crisis in advanced economies in historical perspective, with a view to identifying significant drivers of debt accumulation and subsequent debt reductions. The findings indicate that the Great Accumulation episode of the 2000s reflected a combination of primary fiscal deficits, higher real interest rates, and stock-flow adjustments related to the banking and currency crisis, while unfavorable interest-rate growth differentials contributed to the debt accumulation of the Great Depression during the 1930s. For large debt reductions since 1880, the primary fiscal balance did the heavy lifting, except in the post-World War II period, when negative interest-rate growth differentials in the context of capital controls and financial repression contributed favorably.

Keywords:   debt crisis, advanced economies, debt accumulation, debt reduction, fiscal deficits, real interest rates, interest-rate growth differential, primary fiscal balance, capital controls, financial repression

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