A melhor forma de reduzir um défice

Olivier Blanchard escreve hoje no Vox acerca do tema do momento: consolidação de contas públicas. Como, quando, quanto e em que medida são alguns dos temas abordados em Fiscal Consolidation: at what speed, um texto que sumariza de forma perfeita o debate em torno de política orçamental que se gerou nos últimos três anos e que dá pistas úteis para os países que ainda têm margem de manobra para decidir o que fazer neste domínio. O texto enfatiza, com grande clareza, um dos problemas que tem merecido atenção neste blogue: a implicação que multiplicadores elevados têm para a determinação do perfil ideal de ajustamento orçamental.

When fiscal multipliers are large, government spending cuts and tax hikes have a large adverse effect on output in the short run, and a small initial effect on the ratio of debt to GDP (Eyraud and Weber, 2013). Indeed, as GDP may initially decline by more than debt, it may lead to an initial increase in the debt-to-GDP ratio, something we have seen in a number of countries in this crisis. (All that is needed, for example, is a multiplier above 1 and the sum of the ratio of revenue-to-GDP and the debt-to-GDP ratio above 100 per cent).

Large multipliers do not necessarily affect the optimal timing of fiscal consolidation, however. If they remain just as large in the future, the adjustment will be as painful later. But, if they are larger now than later, this tilts the adjustment toward doing more later: Less pain now, less pain later. And there are at least three reasons to believe that multipliers are larger now (…)

A second argument in favour of backloading is that, when growth is low, the economy is more vulnerable to “stalling” and slipping into recession (Nailwaik, 2011, Sheets, 2011, and others). Tightening fiscal policy when growth is low is thus riskier than when growth is near normal. (A more accurate statement would probably replace “low growth” by “large output gap” as it is really the level of activity that matters here. But the literature has focused on growth rather than on the gap.)

In this sense, the large fiscal consolidation taking place in the United States this year is not as bad, given relatively strong private demand, as the same fiscal consolidation would be in countries where private demand is very weak (…)

A third argument in favor of backloading is that fiscal consolidation carries the risk of causing long-term economic damage through hysteresis effects. DeLong and Summers (2012) have argued that a process of “hysteresis” links the short-term cycle to the long-term trend, implying more persistent fiscal policy effects (…)

The motivation behind fiscal consolidation is that high debt presents costs and risks, and it is therefore essential to reduce it. Textbooks focus on two types of costs, the displacement of capital by debt, and the distortions implied by the higher taxes needed to service the debt. While both indeed reduce growth, there are at least two even more relevant considerations.

The first one is debt overhang. If bond holders believe that the state may default on its bonds, they will require a risk premium and thus a higher interest rate. The crisis has made investors question the safety of government bonds, and many sovereign bonds now indeed have to pay higher spreads. Not only do these higher sovereign spreads make it harder for the government to sustain debt, they typically lead to higher spreads for private borrowers as well (Zoli, 2013). Also, uncertainty associated with the possibility of default feeds uncertainty about taxation and inflation, and all these effects are likely to reduce growth.

The second one, which is closely related, is the risk of multiple equilibria. When debt levels are high, but not so high that default is certain, there are likely to be two, self-fulfilling, equilibria: “good” and “bad.” The “good” equilibrium is where investors believe that the probability of default is low and ask for a low interest rate. The “bad” equilibrium is where investors believe the probability of default is higher and ask for a higher interest rate to compensate for the risk, making it harder for the government to avoid default, and thus justifying their initial beliefs. The higher the level of debt, the closer the two equilibria, and the more likely that, at some point, the economy suddenly shifts to the bad equilibrium. There is no magic number, but at, say, a 100 per cent debt-to-GDP ratio, a 5 percentage point increase in the interest rate, which leads to an increase in the interest bill of 5 per cent of GDP, may well make the difference between sustainability and eventual default.

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