Economic reactions to public finance consolidation - a survey of the literature
Abstract
The paper reviews the theoretical and empirical literature that has investigated the conditions under which a contractionary fiscal policy is effective in reducing debt and deficit, but does not have a negative effect on growth. The issue is central to macroeconomics and policy making, given that many countries are currently facing increasing fiscal imbalances, with additional pressure coming in the medium term from population ageing. The paper concludes that the theoretical impact of fiscal policy on aggregate demand and economic activity depends largely on the conceptual framework considered and its assumptions about the world. Empirical studies based on macro-econometric model simulations find evidence that fiscal consolidations lead initially to production losses, while they can result in a higher output in the medium term. Empirical studies focusing on episodes of changes in fiscal policies provide in turn evidence that under certain circumstances austerity measures may have an expansionary impact on the economy.Download Info
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.Bibliographic Info
Paper provided by European Central Bank in its series Occasional Paper Series with number 38.Length: 29 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:ecb:ecbops:20050038
Contact details of provider:
Postal: Postfach 16 03 19, Frankfurt am Main, Germany
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/home/html/index.en.html
More information through EDIRC
Order Information:
Postal: Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany
Email:
Related research
Keywords: fiscal multiplier; fiscal consolidation; non-Keynesian effects; government spending and taxing.;Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-01 (All new papers)
- NEP-MAC-2005-12-01 (Macroeconomics)
- NEP-PBE-2005-12-01 (Public Economics)
References
References listed on IDEASPlease 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.:
- Francesco Giavazzi & Tullio Jappelli & Marco Pagano, 1999.
"Searching for Non-Keynesian Effects of Fiscal Policy,"
CSEF Working Papers
16, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Francesco Giavazzi & Tullio Jappelli & Marco Pagano, . "Searching for Non-Keynesian Effects of Fiscal Policy," Working Papers 136, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Andrea Zaghini, 1999.
"The economyc policy of fiscal consolidations: The european experience,"
Temi di discussione (Economic working papers)
355, Bank of Italy, Economic Research and International Relations Area.
- Zaghini, A., 1999. "The Economic Policy of Fiscal Consolidations: The European Experience," Papers 355, Banca Italia - Servizio di Studi.
- Fernando Gonzalez & François Haas & Ronald Johannes & Mattias Persson & Liliana Toledo & Roberto Violi & Martin Wieland & Carmen Zins, 2004.
"Market dynamics associated with credit ratings - a literature review,"
Occasional Paper Series
16, European Central Bank.
- Gonzalez, F. & Haas, F. & Johannes, R. & Persson, M. & Toledo, L. & Violi, R. & Zins, C. & Wieland, M., 2004. "Market dynamics associated with credit ratings: a literature review," Financial Stability Review, Banque de France, issue 4, pages 53-76, June.
- Fatás, Antonio & Mihov, Ilian, 2001. "The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence," CEPR Discussion Papers 2760, C.E.P.R. Discussion Papers.
- Axel Schimmelpfennig & Selma Mahfouz & Richard Hemming, 2002. "Fiscal Policy and Economic Activity During Recessions in Advanced Economies," IMF Working Papers 02/87, International Monetary Fund.
- ., 2004. "Market dynamics associated with credit ratings: a literature review," Financial Stability Review, Banque de France, issue 4, pages 77-93, June.
- Adalbert Winkler & Francesco Mazzaferro & Carolin Nerlich & Christian Thimann, 2004. "Official dollarisation/euroisation - motives, features and policy implications of current cases," Occasional Paper Series 11, European Central Bank.
- Véronique Genre & Daphne Momferatou & Gilles Mourre, 2005. "Wage diversity in the euro area - an overview of labour cost differentials across industries," Occasional Paper Series 24, European Central Bank.
- Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000.
"Searching for non-linear effects of fiscal policy: Evidence from industrial and developing countries,"
European Economic Review,
Elsevier, vol. 44(7), pages 1259-1289, June.
- Francesco Giavazzi & Tullio Jappelli & Marco Pagano, 2000. "Searching for Non-Linear Effects of Fiscal Policy: Evidence from Industrial and Developing Countries," NBER Working Papers 7460, National Bureau of Economic Research, Inc.
- Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for Non-Linear Effects of Fiscal Policy: Evidence from Industrial and Developing Countries," CEPR Discussion Papers 2374, C.E.P.R. Discussion Papers.
- Henning Ahnert & Geoff Kenny, 2004. "Quality adjustment of European price statistics and the role for hedonics," Occasional Paper Series 15, European Central Bank.
- Vincent Hogan, 2003.
"Expansionary Fiscal Contractions? Evidence from Panel Data,"
Working Papers
200303, School Of Economics, University College Dublin.
- Vincent Hogan, 2004. "Expansionary Fiscal Contractions? Evidence from Panel Data," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 647-659, December.
- Francesco Mazzaferro & Arnaud Mehl & Michael Sturm & Christian Thimann & Adalbert Winkler, 2002. "Economic relations with regions neighbouring the euro area in the ‘euro time zone," Occasional Paper Series 07, European Central Bank.
- Alberto Musso & Thomas Westermann, 2005. "Assessing potential output growth in the euro area - a growth accounting perspective," Occasional Paper Series 22, European Central Bank.
- 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.
- Robert F. Westcott & C. John McDermott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Working Papers 96/59, International Monetary Fund.
- Alan Sutherland, .
"Fiscal Crises and Aggregate Demand: Can High Public Debt Reverse the Effects of Fiscal Policy?,"
Discussion Papers
95/17, Department of Economics, University of York.
- Sutherland, Alan, 1997. "Fiscal crises and aggregate demand: can high public debt reverse the effects of fiscal policy?," Journal of Public Economics, Elsevier, vol. 65(2), pages 147-162, August.
- Sutherland, Alan, 1995. "Fiscal Crises and Aggregate Demand: Can High Public Debt Reverse the Effects of Fiscal Policy?," CEPR Discussion Papers 1246, C.E.P.R. Discussion Papers.
- Roberto Perotti, 2002. "Estimating the effects of fiscal policy in OECD countries," Working Paper Series 168, European Central Bank.
- Luiz de Mello & Per Mathis Kongsrud & Robert Price, 2004. "Saving Behaviour and the Effectiveness of Fiscal Policy," OECD Economics Department Working Papers 397, OECD Publishing.
- Michael Sturm & Nikolaus Siegfried, 2005. "Regional monetary integration in the member states of the Gulf Cooperation Council," Occasional Paper Series 31, European Central Bank.
- Gabriele Giudice & Alessandro Turrini & Jan in 't Veld, 2003. "Can fiscal consolidations be expansionary in the EU? Ex-post evidence and ex-ante analysis," European Economy - Economic Papers 195, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
- Ignazio Angeloni & Michael Flad & Francesco Paolo Mongelli, 2005. "Economic and monetary integration of the new Member States - helping to chart the route," Occasional Paper Series 36, European Central Bank.
- Jürgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers 148, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
- Guido Wolswijk & Jakob de Haan, 2005. "Government debt management in the euro area - recent theoretical developments and changes in practices," Occasional Paper Series 25, European Central Bank.
- Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November.
- Filippo Altissimo & Evaggelia Georgiou & Teresa Sastre & Maria Teresa Valderrama & Gabriel Sterne & Marc Stocker & Mark Weth & Karl Whelan & Alpo Willman, 2005. "Wealth and asset price effects on economic activity," Occasional Paper Series 29, European Central Bank.
Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- 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.
- Brissimis, Sophocles & Hondroyiannis, George & Papazoglou, Christos & Tsaveas, Nicholas & Vasardani, Melina, 2011. "The determinants of current account imbalances in the Euro Area: a panel estimation approach," MPRA Paper 35362, University Library of Munich, Germany.
- Jonas Fischer & Lars Jonung & Martin Larch, 2007.
"101 Proposals to reform the Stability and Growth Pact. Why so many? A Survey,"
European Economy - Economic Papers
267, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
- Larch, Martin & Jonung, Lars & Fischer, Jonas, 2008. "101 proposals to reform the Stability and Growth Pact. Why so many? A survey," MPRA Paper 20592, University Library of Munich, Germany.
- António Afonso, 2006.
"Expansionary fiscal consolidations in Europe - new evidence,"
Working Paper Series
675, European Central Bank.
- Antonio Afonso, 2010. "Expansionary fiscal consolidations in Europe: new evidence," Applied Economics Letters, Taylor and Francis Journals, vol. 17(2), pages 105-109.
- António Afonso, 2006. "Expansionary fiscal consolidations in Europe: new evidence," Working Papers 2006/18, Department of Economics at the School of Economics and Management (ISEG), Technical University of Lisbon..
- Melecky, Martin & Najdov, Evgenij, 2008.
"Comparing constraints to economic stabilization in Macedonia and Slovakia: macro estimates with micro narratives,"
Policy Research Working Paper Series
4691, The World Bank.
- Martin Melecky & Evgenij Najdov, 2010. "Comparing constraints to economic stabilization in Macedonia and Slovakia: macroestimates with micronarratives," Applied Financial Economics, Taylor and Francis Journals, vol. 20(9), pages 681-699.
- Melecky, Martin & Najdov, Evgenij, 2008. "Comparing Constraints to Economic Stabilization in Macedonia and Slovakia: Macro Estimates with Micro Narratives," MPRA Paper 9786, University Library of Munich, Germany.
- Canale, Rosaria Rita & Napolitano, Oreste, 2009.
"The recessive attitude of EMU policies: reflections on the italian experience, 1998–2008,"
MPRA Paper
20207, University Library of Munich, Germany.
- Canale, Rosaria Rita & Napolitano, Oreste, 2010. "The recessive attitude of EMU policies: reflections on the italian experience, 1998–2008," MPRA Paper 24705, University Library of Munich, Germany.
- Magazzino, Cosimo, 2011. "The nexus between public expenditure and inflation in the Mediterranean countries," MPRA Paper 28493, University Library of Munich, Germany.
- Agnès Bénassy-Quéré, 2006. "Short-Term Fiscal Spillovers in a Monetary Union," Working Papers 2006-13, CEPII research center.
- Magazzino, Cosimo, 2010. "Wagner's law and Italian disaggregated public spending: some empirical evidences," MPRA Paper 26662, University Library of Munich, Germany.
Lists
This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.Statistics
Access and download statisticsCorrections
When requesting a correction, please mention this item's handle: RePEc:ecb:ecbops:20050038For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Official Publications).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.

