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ow Big Was the Effect of Budget Consolidation on the Australian Economy in the 1990s?

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  • Lei Lei Song

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

  • John Freebairn

    ()
    (Department of Economics, The University of Melbourne)

Abstract

This paper evaluates the effects of budget consolidation on the Australian economy in the 1990s by using a modified version of TRYM. By identifying the effects on long-term interest rates of the expected reduction in budget deficits in the 1996/97 financial year, the paper simulates the model for would-be impacts on the economy, had interest rates not fallen due to no budget consolidation. It is found that the program of budget consolidation did have a sizable impact on the economy, raising GDP by up to three quarters of a percentage point and reducing unemployment by 0.3 percentage points in two to three years.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2004n30.

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Length: 28 pages
Date of creation: Nov 2004
Date of revision:
Handle: RePEc:iae:iaewps:wp2004n30

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Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
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  1. Douglas W. Elmendorf, 1996. "The effects of deficit-reduction laws on real interest rates," Finance and Economics Discussion Series 96-44, Board of Governors of the Federal Reserve System (U.S.).
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  15. Nilss Olekalns, 1998. "The Macroeconomic Implications of Current Fiscal Policy," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 31(1), pages 66-72.
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  17. Summers, Peter M., 2001. "Forecasting Australia's economic performance during the Asian crisis," International Journal of Forecasting, Elsevier, vol. 17(3), pages 499-515.
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Cited by:
  1. Marika Karanassou & Hector Sala, 2009. "Labour Market Dynamics in Australia: What Drives Unemployment?," Working Papers 636, Queen Mary, University of London, School of Economics and Finance.

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