Fiscal Cyclicality and Debt Sustainability: Evidence From Over a Century of Data

ABSTRACT Using a historical fiscal dataset for a group of 11 economies over the period 1880–2022, we examine debt sustainability and fiscal policy cyclicality and assess the factors influencing fiscal behaviour. We find that positive and statistically significant responses of primary balances to debt emerge in specific historical episodes and particular macroeconomic regime conditions, including the interwar era and the period from the 1990s up to the global financial crisis, while several regime settings such as low real interest rate environments, high inflation episodes and below the average growth regimes exhibit weak, insignificant, or even negative response to rising debt. We also document a transition from acyclical to countercyclical fiscal policy in the post‐war era. These findings are robust to alternative estimation techniques and to specifications that incorporate the interest–growth differential. A country‐level analysis reveals substantial heterogeneity, with economically meaningful deviations concentrated in specific historical episodes rather than reflecting persistent patterns. Finally, we identify economic development, democratic institutions, country size, bankruptcies, and interest rate fluctuations as key determinants of fiscal policy outcomes.