Walking hand in hand (Cottarelli & Jaramillo)

Walking hand in hand: Fiscal policy and growth in advanced economies by Carlo Cotarelli and Laura Jaramillo published by IMF. “Implementation of fiscal consolidation by advanced economies in coming years needs to take into account the short and long-run interactions between economic growth and fiscal policy. Many countries must reduce high public debt to GDP ratios that penalize longterm growth. However, fiscal adjustment is likely to hurt growth in the short run, delaying improvements in fiscal indicators, including deficits, debt, and financing cost. This paper discusses the complex relationships between fiscal policy and growth both in the short and in the long run.”