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The economyc policy of fiscal consolidations: The european experience

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  • Andrea Zaghini

    ()
    (Banca d'Italia)

Abstract

This paper investigates the relationship between fiscal contractions, permanent improvements in public finances and short-run economic performance. The empirical evidence gathered from the European experience over the last three decades shows clearly that the composition of fiscal adjustments and the length of the period over which they are implemented influence their likelihood of success. Adjustments that concentrate on the expenditure side and unfold over a relatively long time span (three or four years) are more likely to succeed in reducing the public debt/GDP ratio than tax-based or shorter adjustments. Furthermore, macroeconomic consequences are strictly related to the achievement of fiscal success. On average, successful contractions do not trigger economic slowdowns, but unsuccessful adjustments usually do. This evidence is interpreted via the theory known as the expectation view of fiscal policy.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 355.

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Date of creation: Jun 1999
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Handle: RePEc:bdi:wptemi:td_355_99

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Web page: http://www.bancaditalia.it
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Related research

Keywords: Fiscal consolidation; public deficits; expansionary fiscal policy;

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Cited by:
  1. Jérôme Creel & Bruno Ducoudre & Catherine Mathieu & Henri Sterdyniak, 2005. "Doit-on oublier la politique budgétaire? Une analyse critique de la nouvelle théorie anti-keynésienne des finances publiques," Sciences Po publications info:hdl:2441/1769, Sciences Po.
  2. 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.
  3. Siviero, S. & Terlizzese, D. & Visco, I., 1999. "Are Model-Based Inflation Forecasts Used in Monetary Policymaking? A Case Study," Papers 357, Banca Italia - Servizio di Studi.
  4. 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.
  5. Hjelm, Goran, 2002. "Is private consumption growth higher (lower) during periods of fiscal contractions (expansions)?," Journal of Macroeconomics, Elsevier, vol. 24(1), pages 17-39, March.
  6. Tom Verbeke & M. De Clercq, 2003. "The income-environment relationship: Does a logit model offer an alternative empirical strategy?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 03/192, Ghent University, Faculty of Economics and Business Administration.
  7. Maria Gabriella Briotti, 2005. "Economic reactions to public finance consolidation - a survey of the literature," Occasional Paper Series 38, European Central Bank.
  8. Hjelm, Göran & Johansson, Martin W, 2002. "Structural Change in Fiscal Policy and The Permanence of Fiscal Contractions - The Case of Denmark and Ireland," Working Papers 2002:11, Lund University, Department of Economics.
  9. repec:spo:wpecon:info:hdl:2441/1769 is not listed on IDEAS
  10. António Afonso, 2001. "Non-Keynesian Effects of Fiscal Policy in the EU-15," Working Papers Department of Economics 2001/07, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  11. Mourao, Paulo & Rodrigues, Carlos, 2007. "Abordagens da despesa pública nos últimos vinte anos
    [Twenty years of Perspectives on Public Expenditures]
    ," MPRA Paper 3416, University Library of Munich, Germany.
  12. Anton Burger & Martin Zagler, 2007. "Reasons for the U.S. growth period in the nineties: non-keynesian effects, asset wealth and productivity," Department of Economics Working Papers wuwp095, Vienna University of Economics, Department of Economics.
  13. Anton Burger & Martin Zagler, 2008. "US growth and budget consolidation in the 1990s: was there a non-Keynesian effect?," International Economics and Economic Policy, Springer, vol. 5(1), pages 225-235, July.

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