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Cross-Border Effects of Fiscal Consolidations: Estimates Based on Narrative Records

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  • Shafik Hebous
  • Tom Zimmermann

Abstract

We estimate cross-border spillover effects of fiscal consolidation episodes on output, bilateral trade flows, interest rate, and the exchange rate, employing the new IMF action-based fiscal consolidation data. Results indicate a negative effect of foreign fiscal consolidation policies on domestic output. Regarding the transmission mechanism, our results suggest that fiscal consolidations in foreign economies work their way into the domestic economy by negatively affecting exports. We do not find evidence for an interest rate channel. Trade effects are particularly pronounced for some European countries and are insignificant for others, such as the US and Canada. This is not due to the common currency or to differential specialization in trade.

Suggested Citation

  • Shafik Hebous & Tom Zimmermann, 2013. "Cross-Border Effects of Fiscal Consolidations: Estimates Based on Narrative Records," CESifo Working Paper Series 4311, CESifo.
    • Handle: RePEc:ces:ceswps:_4311
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    References listed on IDEAS

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    Cited by:

    1. Patrick Blagrave & Giang Ho & Ksenia Koloskova & Mr. Esteban Vesperoni, 2018. "Cross-Border Transmission of Fiscal Shocks: The Role of Monetary Conditions," IMF Working Papers 2018/103, International Monetary Fund.
    2. Bicu, A.C. & Lieb, L.M., 2015. "Cross-border effects of fiscal policy in the Eurozone," Research Memorandum 019, Maastricht University, Graduate School of Business and Economics (GSBE).
    3. Hebous, Shafik & Zimmermann, Tom, 2013. "Estimating the effects of coordinated fiscal actions in the euro area," European Economic Review, Elsevier, vol. 58(C), pages 110-121.
    4. Sebastian Gechert & Rafael Mentges, 2018. "Financial cycles and fiscal multipliers," Applied Economics, Taylor & Francis Journals, vol. 50(24), pages 2635-2651, May.
    5. J. F. M. De Jong & M. Ferdinandusse & J. Funda, 2018. "Public capital in the 21st century: as productive as ever?," Applied Economics, Taylor & Francis Journals, vol. 50(51), pages 5543-5560, November.
    6. Vetlov, Igor & Attinasi, Maria Grazia & Lalik, Magdalena, 2017. "Fiscal spillovers in the euro area a model-based analysis," Working Paper Series 2040, European Central Bank.

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    More about this item

    Keywords

    fiscal consolidation; cross-border fiscal policy effects; fiscal adjustment; fiscal spillover;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F15 - International Economics - - Trade - - - Economic Integration
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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