Fiscal Adjustments: Determinants and Macroeconomic Consequences
July 1, 2007
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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.
Subject: Expenditure, Fiscal consolidation, Fiscal policy, Public debt, Revenue administration
Keywords: approval rating, coalition government, country, fiscal adjustment, Fiscal consolidation, Global, government, government action, government debt, government participation, government purchase, government purchases of goods and service, government saving, government transfer, minority government, non-Ricardian model, OECD country experience, open economy, wage bill, WP
Pages:
38
Volume:
2007
DOI:
Issue:
178
Series:
Working Paper No. 2007/178
Stock No:
WPIEA2007178
ISBN:
9781451867428
ISSN:
1018-5941
