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The Design of Fiscal Adjustments

In: Tax Policy and the Economy, Volume 27

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  • Alberto Alesina
  • Silvia Ardagna

Abstract

This paper offers three results. First, in line with the previous literature, we confirm that fiscal adjustments based mostly on the spending side are less likely to be reversed. Second, spending based fiscal adjustments have caused smaller recessions than tax based fiscal adjustments. Finally, certain combinations of policies have made it possible for spending based fiscal adjustments to be associated with growth in the economy even on impact rather than with a recession. Thus, expansionary fiscal adjustments are possible.

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This chapter was published in:

  • Jeffrey R. Brown, 2013. "Tax Policy and the Economy, Volume 27," NBER Books, National Bureau of Economic Research, Inc, number brow12-1, July.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12853.

    Handle: RePEc:nbr:nberch:12853

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    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.:
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    1. C. John McDermott & Robert F. Wescott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 725-753, December.
    2. repec:hrv:faseco:3353756 is not listed on IDEAS
    3. repec:aei:rpaper:26118 is not listed on IDEAS
    4. Alesina, Alberto F & Ardagna, Silvia & Perotti, Roberto & Schiantarelli, Fabio, 1999. "Fiscal Policy, Profits and Investment," CEPR Discussion Papers 2250, C.E.P.R. Discussion Papers.
    5. von Hagen, Jurgen & Strauch, Rolf R, 2001. " Fiscal Consolidations: Quality, Economic Conditions, and Success," Public Choice, Springer, vol. 109(3-4), pages 327-46, December.
    6. Alberto Alesina & Carlo Favero & Francesco Giavazzi, 2012. "The Output Effect of Fiscal Consolidations," NBER Working Papers 18336, National Bureau of Economic Research, Inc.
    7. Francesco Daveri & Guido Tabellini, . "Unemployment, Growth and Taxation in Industrial Countries," Working Papers 122, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    8. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions be Expansionary? Tales of Two Small European Countries," NBER Working Papers 3372, National Bureau of Economic Research, Inc.
    9. Ardagna, Silvia, 2007. "Fiscal Policy in Unionized Labor Markets," Scholarly Articles 2580048, Harvard University Department of Economics.
    10. Christina D. Romer & David H. Romer, 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," NBER Working Papers 2966, National Bureau of Economic Research, Inc.
    11. Ardagna, Silvia, 2004. "Fiscal Stabilizations: When Do They Work and Why," Scholarly Articles 2580047, Harvard University Department of Economics.
    12. Ardagna, Silvia, 2007. "Fiscal policy in unionized labor markets," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1498-1534, May.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Monetary or fiscal stimulus can help only if unemployment is cyclical; otherwise, if unemployment is structural expansionary policies will lead only to inflation. Careful recent analyses indicate that unemployment is mainly cyclical in the US
      by Blog Admin in British Politics and Policy at LSE on 2012-10-24 16:00:33
    2. Given the enormity of the short- and long-run fiscal challenges facing the US, the lack of policy detail from both presidential candidates is disappointing
      by Blog Admin in British Politics and Policy at LSE on 2012-10-25 13:00:36
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    Cited by:
    1. Philip R. Lane, 2013. "Growth And Adjustment Challenges For The Euro Area," The Economic and Social Review, Economic and Social Studies, vol. 44(2), pages 273-295.
    2. Agnès Bénassy-Quéré & Guillaume Roussellet, 2012. "Fiscal Sustainability in the Presence of Systemic Banks : the Case of EU Countries," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00755705, HAL.
    3. Stegarescu, Dan, 2013. "Does expenditure composition influence the debt level? Evidence from German federal states," Discussion Papers 52/2013, Deutsche Bundesbank, Research Centre.
    4. Borys, Paweł & Ciżkowicz, Piotr & Rzońca, Andrzej, 2013. "Panel data evidence on effects of fiscal impulses in the EU New Member States," MPRA Paper 48243, University Library of Munich, Germany.
    5. Niamh Hardiman, 2013. "Rethinking the political economy of fiscal consolidation in two recessions in Ireland," Working Papers 201316, Geary Institute, University College Dublin.
    6. Heylen, Freddy & Hoebeeck, Annelies & Buyse, Tim, 2013. "Government efficiency, institutions, and the effects of fiscal consolidation on public debt," European Journal of Political Economy, Elsevier, vol. 31(C), pages 40-59.
    7. T. Buyse & F. Heylen, 2012. "Leaving the empirical (battle)ground: Output and welfare effects of fiscal consolidation in general equilibrium," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/826, Ghent University, Faculty of Economics and Business Administration.
    8. Manos Matsaganis & Chrysa Leventi, 2014. "Distributive Effects of the Crisis and Austerity in Seven EU Countries," ImPRovE Working Papers 14/04, Herman Deleeck Centre for Social Policy, University of Antwerp.
    9. Riccardo Fiorentini & Guido Montani, 2013. "Beyond Austerity A European Recovery Policy Is Feasible," Working Papers 06/2013, University of Verona, Department of Economics.
    10. Ludger Schuknecht, 2013. "Has Public Insurance Gone Too Far?," CESifo Working Paper Series 4217, CESifo Group Munich.
    11. Haffert, Lukas & Mehrtens, Philip, 2013. "From austerity to expansion? Consolidation, budget surpluses, and the decline of fiscal capacity," MPIfG Discussion Paper 13/16, Max Planck Institute for the Study of Societies.
    12. Roland Döhrn & György Barabas & Heinz Gebhardt & Tobias Kitlinksi & Martin Micheli & Simeon Vosen & Lina Zwick, 2013. "Die wirtschaftliche Entwicklung im Inland: Binnennachfrage trägt Aufschwung," RWI Konjunkturbericht, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 64, 09.
    13. Luiz de Mello, 2013. "What Can Fiscal Policy Do in the Current Recession? A Review of Recent Literature and Policy Options," Hacienda Pública Española, IEF, vol. 204(1), pages 113-139, March.

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