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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.

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Bibliographic Info

Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2005_21.

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Date of revision: Jun 2005
Handle: RePEc:gla:glaewp:2005_21

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Cited by:
  1. Graeme Roy, 2006. "Grants Versus Tax Sharing: the Extent of Central Government Control," ERSA conference papers ersa06p74, European Regional Science Association.
  2. 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.

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