Fiscal Reforms, Long-term Growth and Income Inequality
IMF Working Papers, June 29, 2017
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Bibliographic details
- Authors: Santiago Acosta Ormaechea, Takuji Komatsuzaki, Carolina Correa-Caro
- Published: June 29, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484303689.001
Summary of findings
- Estimated effects on growth of nine fiscal reform episodes in seven high-income countries using the Synthetic Control Method.
- Episodes selected via an indicator-based approach evaluating growth-friendly fiscal reforms during 1975-2010.
- In reform countries the annual growth rate of real GDP was on average about 1 percentage point above their synthetic units 10 years after each respective reform.
- Countries which were initially less developed seemed to experience a larger growth impact after their reforms.
- Results are broadly robust to controlling for structural reforms on business regulation, financial market, labor market, and legal and product markets.
- Findings suggest that inequality is not affected by the growth-friendly fiscal reforms analyzed in this paper.
Methodology
- Approach: Synthetic Control Method (SCM).
- Sample: Nine fiscal reform episodes in seven high-income countries.
- Selection period for reforms: 1975-2010.
- Controls included: structural reforms on business regulation, financial market, labor market, and legal and product markets.
Key statistics and publication metadata
- Number of reform episodes analyzed: nine
- Number of countries analyzed: seven
- Reform evaluation period: 1975-2010
- Growth impact observed: about 1 percentage point (annual growth rate of real GDP) higher than synthetic units
- Horizon for the reported growth impact: 10 years after each reform
- Pages: 46
- Volume: 2017
- Issue: 145
- Series: Working Paper No. 2017/145
- DOI: https://doi.org/10.5089/9781484303689.001
- ISBN: 9781484303689
- ISSN: 1018-5941
- Authors: Santiago Acosta Ormaechea, Takuji Komatsuzaki, Carolina Correa-Caro
- Publication date: June 29, 2017
Robustness and caveats
- Results remain broadly robust after controlling for a set of structural reforms that may also affect growth.
- The paper focuses on growth-friendly fiscal reforms as identified by the indicator-based selection; external validity beyond analyzed episodes is not asserted in the summary.
- Inequality measures examined (e.g., Gini coefficient referenced in keywords) showed no effect from the analyzed fiscal reforms.
Policy-relevant implications
- Growth-friendly fiscal reforms can be associated with persistent gains in real GDP growth up to at least 10 years post-reform.
- Larger growth payoffs may accrue to countries that are initially less developed.
- Policymakers considering fiscal reforms can factor in potential long-term growth benefits without clear adverse effects on observed inequality for the reforms studied.
- Assessment of fiscal reform impact should account for concurrent structural reforms (business, financial, labor, legal, product markets) to isolate fiscal effects.
Fiscal Reforms, Long-term Growth and Income Inequality — Santiago Acosta Ormaechea, Takuji Komatsuzaki, Carolina Correa-Caro; IMF Working Paper No. 2017/145; June 29, 2017.
Content in this bundle
- Fiscal Reforms, Long-term Growth and Income Inequality, WP/17/145, June 2017