Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects

July 1, 1996

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Alberto Alesina, and Roberto Perotti. Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects, (USA: International Monetary Fund, 1996) accessed November 8, 2024

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

This paper studies how the composition of fiscal adjustments influences their likelihood of “success”, defined as a long lasting deficit reduction, and their macroeconomic consequences. We find that fiscal adjustments which rely primarily on spending cuts on transfers and the government wage bill have a better chance of being successful and are expansionary. On the contrary fiscal adjustments which rely primarily on tax increases and cuts in public investment tend not to last and are contractionary. We discuss alterative explanations for these findings by studying both a full sample of OECD countries and by focusing on three case studies: Denmark, Ireland and Italy.

Subject: Expenditure, Fiscal consolidation, Fiscal policy, Labor, Labor costs, Public sector wages

Keywords: Consumer confidence, Exchange rate, Fiscal consolidation, Government employment, Government wage, Labor costs, Nonwage government consumption, Nonwage govt, Party government, Public sector wages, Substitution effect, Union-government negotiations, Wage moderation, WP

Publication Details

Pages:

52
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/070
Stock No:

WPIEA0701996
ISBN:

9781451960433
ISSN:

1018-5941

Notes

Also published in Staff Papers, Vol. 44, No. 2, June 1997.

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