The Determinants of Public Debt Consolidations

Using a panel dataset of 86 countries over 1982–2024, this study identifies 190 episodes of public debt consolidation episodes and constructs a fixed-effects panel Logit model within a debt-dynamics decomposition framework to examine how economic fundamentals, policy regimes, and political governance affect the probability of debt consolidation. The results show that the primary fiscal surplus, economic growth, and inflation are significantly and positively associated with the likelihood of debt consolidation, whereas the nominal interest rate and exchange-rate depreciation significantly reduce this likelihood; emerging and developing economies are more sensitive to inflation and exchange-rate factors. Regarding policy regimes, fiscal rules significantly increase the probability of debt consolidation in advanced economies but exert an inhibiting effect in emerging and developing economies; inflation targeting regimes significantly lower the probability of debt consolidation overall. In terms of political governance, government stability is significantly positively correlated with the probability of debt consolidation. Interaction effects indicate that both fiscal rules and inflation targeting strengthen the marginal effect of the primary fiscal surplus on debt consolidation, while fiscal rules attenuate the strength of the inflation channel. This study provides empirical evidence for understanding cross-country heterogeneity in debt consolidation pathways.