02071cas a2200241 a 4500 AALejournalIMF021352 230101c9999 xx r poo 0 0eng d 5.00 USD 9781513560939 1018-5941 BD-DhAAL BD-DhAAL Fotiou, Alexandra. Non-Linearities in Fiscal Policy : The Role of Debt / Alexandra Fotiou. Washington, D.C. : International Monetary Fund, 2020. 1 online resource (40 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Empirical evidence shows that fiscal multipliers depend on the state of the cycle, the nature of fiscal policy and the level of debt. In other words, evidence points to non-linearities in the effects of fiscal policy. This paper provides a framework to examine the role of the level of government debt in the assessment of consolidation policies across the business cycle, allowing for the consolidation multiplier to depend on the level of debt at the time of consolidation. The empirical analysis, which uses a panel of 13 countries between 1980 and 2014, finds that when debt is high, fiscal consolidations based on tax increases are in general self-defeating, in that they result in an increase of the debt-to-GDP ratio. Instead, cutting public expenditure has a less pronounced effect on economic activity and can stabilize debt. The initial level of debt in an economy, when a fiscal consolidation is implemented, appears to work as a channel in explaining evidence of state-dependence of the different consolidation instruments. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2020/246 Full text available on IMF http://elibrary.imf.org/view/journals/001/2020/246/001.2020.issue-246-en.xml IMF e-Library