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Success and Failure of Fiscal Consolidation in the OECD: A Multivariate Analysis

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Author Info
 Heylen, Freddy
Everaert, Gerdie

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Abstract

This paper tests five hypotheses explaining the success and failure of fiscal consolidation in a multivariate regression framework. These hypotheses concern (i) the composition of the consolidation programme, (ii) its size and persistence, (iii) the gravity of the debt situation, (iv) the influence of the international macroeconomic environment and (v) the contribution of a preceding devaluation. To test for composition effects we use cyclically-adjusted data. Although many conclusions of the existing empirical literature are confirmed, some do not survive. A popular hypothesis--that to succeed, consolidation should rely on cutting the government wage bill--is rejected. A new empirical result is that the contribution of a devaluation to the success of fiscal consolidation depends on the composition of the consolidation programme. Copyright 2000 by Kluwer Academic Publishers

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Publisher Info
Article provided by Springer in its journal Public Choice.

Volume (Year): 105 (2000)
Issue (Month): 1-2 (October)
Pages: 103-24
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Handle: RePEc:kap:pubcho:v:105:y:2000:i:1-2:p:103-24

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  1. Christophe Kamps, 2001. "Fiscal Consolidation in Europe: Pre- and Post-Maastricht," Kiel Working Papers 1028, Kiel Institute for the World Economy. [Downloadable!]
  2. Paulo Roberto Arvate & Marcos Felipe Mendes Lopes, 2007. "Institutional Changes, Incentive Schemes And The Decision To Undertake Fiscal Adjustments," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 010, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  3. António Afonso, 2006. "Expansionary fiscal consolidations in Europe - new evidence," Working Paper Series 675, European Central Bank. [Downloadable!]
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  4. António Afonso & Christiane Nickel & Philipp C. Rother, 2006. "Fiscal Consolidations in the Central and Eastern European Countries," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(2), pages 402-421, July. [Downloadable!] (restricted)
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  5. Afonso, António, 2007. "An avenue for expansionary fiscal contractions," MPRA Paper 4593, University Library of Munich, Germany. [Downloadable!]
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  6. 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. [Downloadable!] (restricted)
  7. L. Pozzi & F. Heylen & M. Dossche, 2002. "Government debt and the excess sensitivity of private consumption to current income: an empirical analysis for OECD countries," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 02/155, Ghent University, Faculty of Economics and Business Administration. [Downloadable!]
  8. António Afonso, 2007. "Expansionary fiscal consolidations in Europe: part of conventional wisdom?," Money Macro and Finance (MMF) Research Group Conference 2006 50, Money Macro and Finance Research Group. [Downloadable!]
  9. Christophe Kamps, 2006. "Are the effects of fiscal policy really nonlinear? A note," Empirica, Springer, vol. 33(2), pages 113-125, June. [Downloadable!] (restricted)
  10. Emanuele Baldacci & Benedict J. Clements & Sanjeev Gupta & Erwin Tiongson, 2003. "What Sustains Fiscal Consolidations in Emerging Market Countries?," IMF Working Papers 03/224, International Monetary Fund. [Downloadable!]
  11. Jochen Mierau & Richard Jong-A-Pin & Jakob de Haan, 2007. "Do political variables affect fiscal policy adjustment decisions? New empirical evidence," Public Choice, Springer, vol. 133(3), pages 297-319, December. [Downloadable!] (restricted)
  12. António Afonso, 2001. "Non-Keynesian Effects of Fiscal Policy in the EU-15," Working Papers 2001/07, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon.. [Downloadable!]
  13. Julia Darby & V. Anton Muscatelli & Graeme Roy, 2004. "Fiscal Consolidation And Decentralisation: A Tale Of Two Tiers," Working Papers 2004_2, Department of Economics, University of Glasgow. [Downloadable!]
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  14. Sanjeev Gupta & Emanuele Baldacci & Benedict Clements & Erwin R. Tiongson, 2005. "What sustains fiscal consolidations in emerging market countries?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 10(4), pages 307-321. [Downloadable!]
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