Hjelm, Göran () (National Institute of Economic Research)
Abstract
In 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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Publisher Info
Paper 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. Handle: RePEc:hhs:nierwp:0092
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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 H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
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