IMF research warns short-term fiscal consolidation pain could become more serious

IMF headquarters in Washington DC

Policy-makers need to pay more attention to fiscal multipliers to avoid "unpleasant surprises", according to a working paper published by the IMF.

In The Challenge of Debt Reduction during Fiscal Consolidation, authors Luc Eyraud and Anke Weber study the impact of fiscal consolidation on debt dynamics. They find that fiscal tightening may have a short-run negative impact on the deficit as output falls, but debt starts to fall in the longer run.

However, the authors warn the impact on growth

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