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This paper assesses the effects of fiscal consolidations associated with public debt reduction on medium-term output growth during periods of private debt deleveraging. The analysis covers 107 countries and 79 episodes of public debt reduction driven by discretionary fiscal adjustments during 1980–2012. It shows that expenditure-based, front-loaded fiscal adjustments can dampen growth when there are credit supply restrictions. Instead, fiscal adjustments that are gradual and rely on a mix of revenue and expenditure measures can support output expansion, while reducing public debt. In this context, protecting public investment is critical for medium-term growth, as is the implementation of supply-side, productivity-enhancing reforms.

International finance. --- Foreign exchange. --- Cambistry --- Currency exchange --- Exchange, Foreign --- Foreign currency --- Foreign exchange problem --- Foreign money --- Forex --- FX (Finance) --- International exchange --- International finance --- Currency crises --- International monetary system --- International money --- Finance --- International economic relations --- Financial Risk Management --- Macroeconomics --- Public Finance --- Fiscal Policies and Behavior of Economic Agents: General --- Fiscal Policy --- Debt --- Debt Management --- Sovereign Debt --- National Government Expenditures and Related Policies: General --- National Government Expenditures and Related Policies: Infrastructures --- Other Public Investment and Capital Stock --- Public finance & taxation --- Fiscal consolidation --- Public debt --- Expenditure --- Debt reduction --- Public investment spending --- Fiscal policy --- Debts, Public --- Expenditures, Public --- Debts, External --- Public investments