Fiscal Prudence (Mauro et al.)

A modern history of fiscal prudence and profligacy by Paolo Mauro, Rafael Romeu, Ariel Binder, Asad Zaman published by IMF, indicated by Alvaro Manoel (01/12). “We find that when a country has a public debt stock above an estimated threshold (65 percent of GDP for the whole sample period and as low as 20 percent of GDP for the pre-WWII period), unexpected declines in long term growth lead to weaker increases of the primary fiscal balance in response to rising debt, whereas increases in sovereign borrowing costs lead to a stronger policy response to rising debt.”