Indeed, several recent studies have found that high public debt at or above 85 percent of GDP begins to affect economic growth negatively. For many debt-ridden AMEs, therefore, public debt reduction has obvious merits. But such fiscal consolidation may unfortunately bear fruit only after a long spell of painful economic contraction.
And it could even defeat its purposes, at least in the short run, and result in a higher, rather than lower, public debt ratio – especially in an economy where the public debt ratio is already high and the fiscal multiplier large.