Debt consolidation and fiscal stabilization of deep recessions
The global financial crisis of 2008–09 has sent public debt on sharplyhigher trajectories. With the economic recovery gradually taking hold, thefocus is now shifting to fiscal “exit” strategies. Medium-term consolidationefforts are likely to include not only tax increases but also sizeable spendingcuts. Our paper uses a standard new Keynesian model to show that the an-ticipation…