The anatomy of public debt reversals: new empirical insights from developing countries

This study aims to investigate how different policy shocks help erode public debt ratios across a large sample of developing countries. Using Jordas (2005) local projection model, the study's findings show a one percent shock to policy variables indeed erodes the public debt ratio; the effects, however, largely depend on appropriate timing and design of policy shock. In addition, expenditure-led policies tend to be more powerful as compared to revenue-based measures in eroding the public debt ratios. The study's key policy suggestion is to prioritize gradual implementation of policy options in eroding the debt ratios over the medium-term.