When Are Fiscal Contractions Successful? Lessons for Countries Within and Outside the EMU
AbstractIn the past 25 years, many OECD countries have implemented fiscal contractions to strengthen their public finances. The macroeconomic outcomes of these efforts have varied. With the aid of an econometric model, this paper seeks to identify the factors that make contractions successful from a macroeconomic standpoint. The findings suggest, among other things, that favorable changes in the real exchange rate prior to the period of fiscal contraction and in the real quantity of money during this period play an important part in the macroeconomic outcome. This indicates in turn that it may be more difficult to implement successful fiscal contractions within the EMU. The findings also show that the composition of the contraction in regard to the relative proportions of tax increases and expenditure cutbacks, respectively, is probably less important than has usually been assumed.
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Bibliographic InfoPaper provided by National Institute of Economic Research in its series Working Paper with number 92.
Length: 27 pages
Date of creation: 16 Jun 2004
Date of revision:
Publication status: Published in Journal of Post Keynesian Economics, 2007, pages 327-358.
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More information through EDIRC
Fiscal Contractions; Fiscal Policy; Real Exchange Rate; EMU;
Find related papers by JEL classification:
- C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- 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
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-01-16 (All new papers)
- NEP-EEC-2005-01-16 (European Economics)
- NEP-MAC-2005-01-16 (Macroeconomics)
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