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Fiscal Federalism and Fiscal Consolidation: Evidence from an Event Study

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  • Julia Darby
  • V. Anton Muscatelli
  • Graeme Roy

Abstract

Fiscal consolidations, episodes where governments make large discretionary improvements in their fiscal positions, have received considerable attention, especially in EMU. The existing literature demonstrates that the composition of consolidations is a crucial determinant of their success. We show that sub-central governments also play a key role in consolidations through sustained cuts in expenditures, as their intergovernmental grants are cut. In contrast to existing studies we find that cuts in capital spending at sub-central levels are a feature of successful consolidations. We also show that the government type and the nature of fiscal arrangements in a country impact on these results.

Suggested Citation

  • Julia Darby & V. Anton Muscatelli & Graeme Roy, "undated". "Fiscal Federalism and Fiscal Consolidation: Evidence from an Event Study," Working Papers 2005_21, Business School - Economics, University of Glasgow, revised Jun 2005.
    • Handle: RePEc:gla:glaewp:2005_21
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    1. Julia Darby & Anton Muscatelli & Graeme Roy, 2006. "Asymmetries in the Responses of Sub-Central Governments to Changes in Grants: Evidence From an Event Study," ERSA conference papers ersa06p508, European Regional Science Association.
    2. Graeme Roy, 2006. "Grants Versus Tax Sharing: the Extent of Central Government Control," ERSA conference papers ersa06p74, European Regional Science Association.

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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