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Fiscal Consolidations and Public Debt in Europe

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  • Gianluca Cafiso
  • Roberto Cellini

Abstract

The objective of this paper is to gain insights into the relationship between deficit-reducing policies and the evolution of the debt/GDP ratio. We consider past events of fiscal consolidation in a selected group of EU countries and check what is the associated change of the debt/GDP ratio both from a short and medium-term perspective. As for the medium-term perspective, we do also differentiate between tax-based and savings-based fiscal consolidations. Our results point towards a positive short-term effect, while the medium-term effect turns out to be negative. Savingsbased fiscal consolidations result to be less negative on the debt/GDP ratio’s evolution than tax-based ones.

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Bibliographic Info

Paper provided by CEPII research center in its series Working Papers with number 2013-35.

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Date of creation: Nov 2013
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Handle: RePEc:cii:cepidt:2013-35

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Keywords: Fiscal consolidations; debt/GDP ratio; Europe;

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  1. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
  2. Clinton, Kevin & Kumhof, Michael & Laxton, Douglas & Mursula, Susanna, 2011. "Deficit reduction: Short-term pain for long-term gain," European Economic Review, Elsevier, vol. 55(1), pages 118-139, January.
  3. Perotti, Roberto, 1996. "Fiscal Consolidation in Europe: Composition Matters," American Economic Review, American Economic Association, vol. 86(2), pages 105-10, May.
  4. Giancarlo Corsetti & Keith Kuester & Andre Meier & Gernot J. Mueller, 2010. "Debt Consolidation and Fiscal Stabilization of Deep Recessions," Economics Working Papers ECO2010/03, European University Institute.
  5. Douglas Sutherland & Peter Hoeller & Rossana Merola, 2012. "Fiscal Consolidation: Part 1. How Much is Needed and How to Reduce Debt to a Prudent Level?," OECD Economics Department Working Papers 932, OECD Publishing.
  6. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2012. "Fiscal Stimulus with Spending Reversals," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 878-895, November.
  7. Cwik, Tobias J. & Wieland, Volker, 2009. "Keynesian government spending multipliers and spillovers in the Euro area," CFS Working Paper Series 2009/25, Center for Financial Studies (CFS).
  8. Alberto Alesina & Carlo Favero & Francesco Giavazzi, 2012. "The Output Effect of Fiscal Consolidations," NBER Working Papers 18336, National Bureau of Economic Research, Inc.
  9. Gianluca Cafiso, 2012. "Debt developments and fiscal adjustment in the EU," Intereconomics: Review of European Economic Policy, Springer, vol. 47(1), pages 61-72, January.
  10. Coenen, Günter & Mohr, Matthias & Straub, Roland, 2008. "Fiscal consolidation in the euro area: Long-run benefits and short-run costs," Economic Modelling, Elsevier, vol. 25(5), pages 912-932, September.
  11. Gernot Müller & Giancarlo Corsetti & André Meier, 2009. "Fiscal Stimulus with Spending Reversals," IMF Working Papers 09/106, International Monetary Fund.
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