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Duration of Fiscal Consolidations in the European Union

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  • Reyes Maroto Illera
  • Carlos Mulas-Granados

Abstract

This paper examines the duration of fiscal consolidations among the fifteen EU Members States using data from the European Commission for the period 1960-2000. Using the duration model approach, we estimate the hazard and survivor functions of our series. Then we discuss what is the duration model that best fits our data, and which are the explanatory variables that best explain the probability of ending a fiscal consolidation period. We deal also with those aspects related to sample heterogeneity and the sensitivity of our results to different possible definitions of fiscal adjustment. We find evidence that the probability of ending a period of fiscal consolidation depends on the debt level, the magnitude of the adjustment, the extent of expenditure cuts, and the degree of cabinet fragmentation. We also find that under a stricter definition of fiscal consolidation, political variables, such as coalition size and election year, gain importance with respect to economic variables as predictors of probability of ending a fiscal consolidation period.

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Paper provided by FEDEA in its series Working Papers with number 2001-19.

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Handle: RePEc:fda:fdaddt:2001-19

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  1. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 26(2), pages 646-79, June.
  2. Alberto F. Alesina & Roberto Perotti, 1999. "Budget Deficits and Budget Institutions," NBER Chapters, National Bureau of Economic Research, Inc, in: Fiscal Institutions and Fiscal Performance, pages 13-36 National Bureau of Economic Research, Inc.
  3. Mark Hallerberg & Jurgen von Hagen, 1997. "Electoral Institutions, Cabinet Negotiations, and Budget Deficits in the European Union," NBER Working Papers 6341, National Bureau of Economic Research, Inc.
  4. McCloughan, Patrick & Stone, Ian, 1998. "Life duration of foreign multinational subsidiaries: Evidence from UK northern manufacturing industry 1970-93," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 16(6), pages 719-747, November.
  5. Jürgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 148, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  6. Perotti, Roberto, 1998. " The Political Economy of Fiscal Consolidations," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 100(1), pages 367-94, March.
  7. Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
  8. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, Elsevier, vol. 33(5), pages 903-933, May.
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Cited by:
  1. Benedict J. Clements & Sanjeev Gupta & Erwin Tiongson & Emanuele Baldacci, 2003. "What Sustains Fiscal Consolidations in Emerging Market Countries?," IMF Working Papers, International Monetary Fund 03/224, International Monetary Fund.
  2. Juan F. Jimeno, . "Demografía, empleo, salarios y pensiones," Working Papers, FEDEA 2002-04, FEDEA.
  3. Jochen Mierau & Richard Jong-A-Pin & Jakob de Haan, 2007. "Do political variables affect fiscal policy adjustment decisions? New empirical evidence," Public Choice, Springer, Springer, vol. 133(3), pages 297-319, December.
  4. Benedict J. Clements & Sanjeev Gupta & Emanuele Baldacci & Carlos Mulas-Granados, 2002. "Expenditure Composition, Fiscal Adjustment, and Growth in Low-Income Countries," IMF Working Papers, International Monetary Fund 02/77, International Monetary Fund.

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