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This project investigates how fiscal authorities respond to shocks related to long-term secular transformations—such as technological shifts, demographic changes, natural disasters. and geopolitical instability—by assessing their impact on public debt and the strength of subsequent fiscal adjustments. The analysis is motivated by the growing frequency and severity of these shocks, which undermine macroeconomic stability and call for enhanced fiscal resilience.

Using an extended fiscal reaction function framework (Bohn, 1998, 2005; Mendoza and Ostry, 2008), we study over 100 IMF member countries from 1980 onward, incorporating a number of exogenous shocks related to technology (TFP shocks via Solow residuals), natural disasters, and temperature shocks, geopolitics (geopolitical risk, military spending, sanctions), and demographics. We assess (i) the impact of these shocks on public debt and (ii) whether policymakers systematically adopt pre-emptive actions to create policy space and preserve debt sustainability by increasing primary balances in response to debt surges following such shocks. The analysis is disaggregated by income group, vulnerability to disasters, ODA dependance, geopolitical alignment.

Findings indicate that shocks related to secular transformation generally weaken fiscal responses to rising debt, highlighting constraints to policy space, reduced fiscal resilience and greater solvency risks. However, the opposite is found, for instance, for technological shifts. This research is the first to systematically apply the fiscal reaction framework in the context of secular shock exposures and provides novel insights for fiscal surveillance and resilience building, especially for debt-vulnerable countries.