High public debt is urging policy makers to consider strategies to rebuild buffers and preserve debt sustainability. We focus on discretionary fiscal consolidation, defined as an increase in the ratio of primary balance (the difference between government revenues and non-interest expenditures) to GDP not driven by business cycle considerations, and evaluate whether—and under which conditions—it is likely to be associated with a durable reduction in public debt to GDP ratios. Our findings, based on a large sample of advanced and emerging countries, indicate that, on average, discretionary fiscal consolidation has a minimal impact on debt ratios. However, discretionary consolidations implemented during economic upturns or in scenarios where they can “crowd in” private investment, are more likely to be associated with sustained reductions in debt ratios.
This paper analyzes inflation dynamics in 21 advanced and emerging market economies since 2020. We decompose inflation into core inflation as measured by the weighted median inflation rate, and headline shocks––deviations of headline inflation from core. Headline shocks occurred largely on account of energy price changes, although food price changes and indicators of supply chain problems also played a role. We explain the evolution of core inflation with two factors: the strength of macroeconomic conditions—measured by the unemployment gap, the output gap, and the ratio of job vacancies to unemployment—and the pass-through into core inflation from past headline shocks. We conclude that the international rise and fall of inflation since 2020 largely reflected the direct and pass-through effects of headline shocks. Macroeconomic conditions generally played a secondary role. In the United States, estimated price pressures from strong macroeconomic conditions had been greater than in other economies but have eased.
This paper analyzes the dramatic rise in U.S. inflation since 2020, which we decompose into a rise in core inflation as measured by the weighted median inflation rate and deviations of headline inflation from core. We explain the rise in core with two factors, the tightening of the labor market as captured by the ratio of job vacancies to unemployment, and the pass-through into core from past shocks to headline inflation. The headline shocks themselves are explained largely by increases in energy prices and by supply chain problems as captured by backlogs of orders for goods and services. Looking forward, we simulate the future path of inflation for alternative paths of the unemployment rate, focusing on the projections of Federal Reserve policymakers in which unemployment rises only modestly to 4.4 percent. We find that this unemployment path returns inflation to near the Fed’s target only under optimistic assumptions about both inflation expectations and the Beveridge curve relating the unemployment and vacancy rates. Under less benign assumptions about these factors, the inflation rate remains well above target unless unemployment rises by more than the Fed projects.
Since Tocqueville (1835), civil society has been recognized as a cornerstone of liberal democracy. But populists claim to be the only legitimate representatives of the people, leaving no space for civil society. Are populism and civil society enemies? To answer this question, we look at voters’ choices in Europe. We find that individuals belonging to associations are less likely by 1.6 to 2.8 percentage points to vote for populist parties, which is large considering that the average vote share for populist parties is between 12 and 22 percent. This results survives to a large number of robustness checks.
India introduced credit scoring technology in 2007. We study adoption by the two main types of banks operating there, new private banks (NPBs) and state-owned public sector banks (PSBs). NPBs start checking the credit scores of most borrowers before lending, soon after the technology is introduced. PSBs do so equally quickly for new borrowers but very slowly for prior clients, although lending without checking scores is reliably associated with more delinquencies. We show that an important factor explaining the difference in adoption is the stickiness of past bank structures and associated managerial practices. Past practices hold back better practices today.
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