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Technology and the Future of Work.

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The Macroeconomic and Distributional Implications of Fiscal Consolidations in Low-income Countries.

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This paper explores the feasibility of an idea proposed first by the German Council of Economic Experts in 2011 and revisited by Italian and French authorities in 2021: the one-off mutualization of some European legacy debt through the creation of a European Debt Management Agency (EDMA). The paper does not argue in favor or against these proposals or make a proposal of its own. Rather it outlines a conceptual framework that can be used to quantify the contours of mutualization proposals and draws lessons from the debt assumption in the United States in 1790. The framework suggests that by capitalizing the convenience yield on European-wide safe assets, the EDMA could issue up to 15 percent of euro area GDP, helping to put national debts on a sounder trajectory. The analysis suggests that, without mutualization, some euro area countries are likely to experience decreasing debt-to-GDP ratios over the forecast period. This is not the case for Belgium, Finland, France, Italy, and Spain, where further fiscal consolidation would be needed. For these countries, we consider the effects of a debt mutualization equivalent to 26 percent of their GDP. For Italy, this operation alone is enough to ensure a decreasing debt-to-GDP path. For the others, the news is more mixed: while the additional fiscal consolidation is smaller, 1.3 to 2.3 percent of GDP are still required to reduce debt with 95 percent probability.

Macroeconomics --- Economics: General --- Public Finance --- Financial Risk Management --- Exports and Imports --- Policy Objectives --- Policy Designs and Consistency --- Policy Coordination --- International Lending and Debt Problems --- Macroeconomic Aspects of International Trade and Finance: General --- Debt --- Debt Management --- Sovereign Debt --- Fiscal Policy --- Economic & financial crises & disasters --- Economics of specific sectors --- Public finance & taxation --- Finance --- International economics --- Public debt --- Asset and liability management --- Fiscal policy --- External debt --- Currency crises --- Informal sector --- Economics --- Debts, Public --- Debts, External --- Italy