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Fiscal consolidations

Author

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  • Markus Brueckner

Abstract

I examine whether action-based fiscal consolidations are exogenous to contemporaneous GDP growth. Based on the narrative record, these fiscal consolidations had the primary objective to reduce a budget deficit. I find that temperature changes, the GDP growth rate of trading partners, and an international commodity price index have significant: (i) negative contemporaneous effects on action-based fiscal consolidations; (ii) positive contemporaneous effects on GDP growth. These results imply that it is highly unlikely that action-based fiscal consolidations are exogenous to contemporaneous GDP growth. Using an instrumental variables approach, I find that action-based fiscal consolidations have significant positive effects on GDP growth.

Suggested Citation

  • Markus Brueckner, 2021. "Fiscal consolidations," CAMA Working Papers 2021-57, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2021-57
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2021-07/57_2021_brueckner0.pdf
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    More about this item

    Keywords

    Fiscal Consolidations; GDP Growth; Identification; Narrative Approach; Simultaneous Systems of Equations;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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