Fiscal Anatomy of Two Crises and an Interlude

The Global Financial Crisis (GFC) and the COVID-19 pandemic are associated with the largest increases in public debt ratios since World War II. We decompose unexpected changes in debt ratios into the role of surprises in economic growth, interest costs, policy measures, and other factors. During both crises, lower-than-expected output contributed the most to higher-than-expected debt ratios. Fiscal policy measures recorded in the public deficit were similar in the two episodes. We also analyze the decade-long interlude (2010-19). Rather than declining as foreseen in a normative scenario, debt ratios remained stable on average, as interest rates, policy adjustment and, in some countries, economic growth turned out lower than expected.