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Revenue- versus spending-based fiscal consolidation announcements: Multipliers and follow-up

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  • Beetsma, Roel
  • Furtuna, Oana
  • Giuliodori, Massimo
  • Mumtaz, Haroon

Abstract

Using a new narrative dataset on fiscal consolidation announcements for thirteen EU countries over the period 1978–2013, a panel VAR analysis shows that revenue-based announcements appear more credible, but affect economic activity more adversely than do spending-based announcements. Higher revenue multipliers and, to a lesser extent, larger actual follow-up following a revenue-based announcement help to explain the difference. The uniqueness of our dataset allows to control for anticipation effects of budgetary implementation and variables that respond quickly to news. The main findings are similar if we include in the specification open-economy variables.

Suggested Citation

  • Beetsma, Roel & Furtuna, Oana & Giuliodori, Massimo & Mumtaz, Haroon, 2021. "Revenue- versus spending-based fiscal consolidation announcements: Multipliers and follow-up," Journal of International Economics, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:inecon:v:131:y:2021:i:c:s0022199621000325
    DOI: 10.1016/j.jinteco.2021.103455
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    Cited by:

    1. David, Antonio C. & Guajardo, Jaime & Yepez, Juan F., 2022. "The rewards of fiscal consolidations: Sovereign spreads and confidence effects," Journal of International Money and Finance, Elsevier, vol. 123(C).
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    3. Keuschnigg, Christian & Johs, Julian & Stevens, Jacob, 2021. "Consolidating the Covid Debt," Economics Working Paper Series 2112, University of St. Gallen, School of Economics and Political Science.
    4. Gomez-Gonzalez, Jose E. & Uribe, Jorge M. & Valencia, Oscar, 2024. "Sovereign Risk and Economic Complexity," IDB Publications (Working Papers) 13393, Inter-American Development Bank.
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    6. Joan Paredes & Javier J. Pérez & Gabriel Perez Quiros, 2023. "Fiscal targets. A guide to forecasters?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(4), pages 472-492, June.
    7. Elisé Wendlassida Miningou, 2022. "External debt, fiscal consolidation, and government expenditure on education," Cahiers de recherche 22-02, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    8. Jose E. Gomez-Gonzalez & Jorge M. Uribe & Oscar M. Valencia, 2023. "Sovereign Risk and Economic Complexity: Machine Learning Insights on Causality and Prediction," IREA Working Papers 202315, University of Barcelona, Research Institute of Applied Economics, revised Nov 2023.
    9. Ardanaz, Martín & Cavallo, Eduardo A. & Izquierdo, Alejandro & Puig, Jorge, 2021. "The Output Effects of Fiscal Consolidations: Does Spending Composition Matter?," IDB Publications (Working Papers) 11857, Inter-American Development Bank.

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    More about this item

    Keywords

    Fiscal consolidation announcements; Follow-up; Multipliers; Panel vector auto-regression; Narrative identification; Exports; Imports; Exchange rates;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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