How long can austerity persist? The factors that sustain fiscal consolidations
AbstractTo put public debt on a sustainable path, many governments face the task of enacting large fiscal consolidation followed by years of sustained primary surpluses. By estimating hazard functions for the duration of consolidations, we analyse the features of past consolidation efforts across a panel of advanced economies. Our contribution is to identify the factors that help to start and sustain consolidations, separately discussing governments’ “commitment” to the cause as well as their “capacity” for action. Our analysis suggests that longer consolidations are initiated when public debt is high, fiscal deficits are large, the interest burden heavy and long-term sovereign bond yields elevated. However, we also find that a countries’ “capacity” to change course is important. Higher initial private sector savings, a stronger external balance, a competitive position and stable financial conditions appear to provide more scope for governments to sustain longer-lasting consolidations. Once we have controlled for the initial macroeconomic conditions, there is a lesser role for governments’ commitment as reflected in factors such as the composition and the pace of the fiscal adjustment or the political cycle in explaining the duration of consolidation. However, commitment to permanent, rather than temporary, fiscal adjustment is key.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Europa Grande in its journal European Journal of Government and Economics.
Volume (Year): 2 (2013)
Issue (Month): 1 (June)
Contact details of provider:
government debt; government deficit; fiscal consolidation; panel data; survival function;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
- António Afonso, 2006.
"Expansionary fiscal consolidations in Europe: new evidence,"
Working Papers Department of Economics
2006/18, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
- Antonio Afonso, 2010. "Expansionary fiscal consolidations in Europe: new evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 17(2), pages 105-109.
- Afonso, António, 2006. "Expansionary fiscal consolidations in Europe: new evidence," Working Paper Series 0675, European Central Bank.
- Maria Gabriella Briotti, 2004. "Fiscal adjustment between 1991 and 2002 - stylised facts and policy implications," Occasional Paper Series 09, European Central Bank.
- Rudiger Ahrend & Pietro Catte & Robert W.R. Price, 2006. "Interactions Between Monetary and Fiscal Policy: How Monetary Conditions Affect Fiscal Consolidation," OECD Economics Department Working Papers 521, OECD Publishing.
- Martin Larch & Alessandro Turrini, 2011.
"Received Wisdom and Beyond: Lessons from Fiscal Consolidation in the EU,"
National Institute Economic Review,
National Institute of Economic and Social Research, vol. 217(1), pages R1-R18, July.
- Larch, Martin & Turrini, Alessandro, 2008. "Received wisdom and beyond: Lessons from fiscal consolidations in the EU," MPRA Paper 20604, University Library of Munich, Germany.
- Martin Larch & Alessandro Turrini, 2008. "Received wisdom and beyond: Lessons from fiscal consolidation in the EU," European Economy - Economic Papers 320, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
- Reinhart, Carmen & Rogoff, Kenneth, 2009.
"The Aftermath of Financial Crises,"
CEPR Discussion Papers
7209, C.E.P.R. Discussion Papers.
- Reyes Illera & Carlos Mulas-Granados, 2008. "What makes fiscal consolidations last? A survival analysis of budget cuts in Europe (1960–2004)," Public Choice, Springer, vol. 134(3), pages 147-161, March.
- Salvador Barrios & Sven Langedijk & Lucio Pench, 2010. "EU fiscal consolidation after the financial crisis. Lessons from past experiences," European Economy - Economic Papers 418, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2009.
"Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison,"
Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299, September.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Is the 2007 US Sub-prime Financial Crisis So Different? An International Historical Comparison," American Economic Review, American Economic Association, vol. 98(2), pages 339-44, May.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," NBER Working Papers 13761, National Bureau of Economic Research, Inc.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2008.
"Banking Crises: An Equal Opportunity Menace,"
NBER Working Papers
14587, National Bureau of Economic Research, Inc.
- Lojsch, Dagmar Hartwig & Rodríguez-Vives, Marta & Slavík, Michal, 2011. "The size and composition of government debt in the euro area," Occasional Paper Series 132, European Central Bank.
- Bracke, Philippe, 2013.
"How long do housing cycles last? A duration analysis for 19 OECD countries,"
Journal of Housing Economics,
Elsevier, vol. 22(3), pages 213-230.
- Philippe Bracke, 2011. "How Long Do Housing Cycles Last? a Duration Analysis for 19 OECD Countries," IMF Working Papers 11/231, International Monetary Fund.
- Carmen M. Reinhart & Vincent R. Reinhart & Kenneth S. Rogoff, 2012. "Debt Overhangs: Past and Present," NBER Working Papers 18015, National Bureau of Economic Research, Inc.
- Pablo Hernández de Cos & Enrique Moral-Benito, 2011. "Endogenous fiscal consolidations," Banco de Espaï¿½a Working Papers 1102, Banco de Espa�a.
- Luca Agnello & Vitor Castro & Ricardo M. Sousa, 2013.
"What Determines the Duration of a Fiscal Consolidation Program?,"
GEMF Working Papers
2013-09, GEMF - Faculdade de Economia, Universidade de Coimbra.
- Agnello, Luca & Castro, Vitor & Sousa, Ricardo M., 2013. "What determines the duration of a fiscal consolidation program?," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 113-134.
- Luca Agnello & Vítor Castro & Ricardo M. Sousa, 2012. "What determines the duration of a fiscal consolidation program?," NIPE Working Papers 17/2012, NIPE - Universidade do Minho.
- Andrea Pescatori & Daniel Leigh & Jaime Guajardo & Pete Devries, 2011. "A New Action-Based Dataset of Fiscal Consolidation," IMF Working Papers 11/128, International Monetary Fund.
- Atif Mian & Amir Sufi & Francesco Trebbi, 2014.
"Resolving Debt Overhang: Political Constraints in the Aftermath of Financial Crises,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 6(2), pages 1-28, April.
- Atif R. Mian & Amir Sufi & Francesco Trebbi, 2012. "Resolving Debt Overhang: Political Constraints in the Aftermath of Financial Crises," NBER Working Papers 17831, National Bureau of Economic Research, Inc.
- Patrick Royston, 2006. "Explained variation for survival models," Stata Journal, StataCorp LP, vol. 6(1), pages 83-96, March.
- Ardagna, Silvia, 2004. "Fiscal Stabilizations: When Do They Work and Why," Scholarly Articles 2580047, Harvard University Department of Economics.
- Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
- Ruiz, Rubén & Maroto, Concepción, 2008. "The Youngest OR in Europe," European Journal of Operational Research, Elsevier, vol. 189(3), pages 579-582, September.
- Isabelle Joumard & Makoto Minegishi & Christophe André & Chantal Nicq & Robert W.R. Price, 2008. "Accounting for One-off Operations when Assessing Underlying Fiscal Positions," OECD Economics Department Working Papers 642, OECD Publishing.
- Heylen, Freddy & Everaert, Gerdie, 2000. " Success and Failure of Fiscal Consolidation in the OECD: A Multivariate Analysis," Public Choice, Springer, vol. 105(1-2), pages 103-24, October.
- Ardagna, Silvia, 2004. "Fiscal stabilizations: When do they work and why," European Economic Review, Elsevier, vol. 48(5), pages 1047-1074, October.
- Emanuele Baldacci & Sanjeev Gupta & Carlos Mulas-Granados, 2010. "Restoring Debt Sustainability After Crises," IMF Working Papers 10/232, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Diego Varela).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.