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Fiscal Adjustments: Determinants and Macroeconomic Consequences

Author/Editor: Kumar, Manmohan S. | Leigh, Daniel | Plekhanov, Alexander
Authorized for Distribution: July 1, 2007
Electronic Access: Free Full Text (PDF file size is 383KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: The paper analyzes the determinants of success of recent fiscal consolidations in the OECD countries as well as the short-run and long-run effects of fiscal adjustments on economic activity by looking at fourteen case studies, panel data for OECD countries, and the results of simulations using a non-Ricardian multi-country dynamic general equilibrium model. The study finds that while fiscal consolidations tend to have short-run contractionary effects, they can be expansionary in the long run, provided that they do not rely excessively on cuts in productive government expenditure. They can also create positive spillover effects for the rest of the world.
 
Series: Working Paper No. 07/178
Subject(s): Fiscal policy | Adjustment process | Public debt | Economic models
Author's keyword(s): Fiscal consolidation | fiscal adjustment | government debt | non-Ricardian model
 
English  
    Published:   July 1, 2007        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2007178   Pages:   38
    Price:   US$18.00 (Academic Rate: US$18.00)
       
     
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