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Modeling Optimal Fiscal Consolidation Paths in a Selection of European Countries

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  • Daniel Kanda
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    Abstract

    For a number of countries - Italy, Netherlands, the United Kingdom, Germany, Ireland, and France - this paper develops an inter-temporal model that elicits the implied country-preferences over balancing the conflicting objectives of fiscal consolidation and reduction of economic slack. The model suggests that some front-loading of adjustment is desirable, although the extent would vary by country preferences. It also finds that proposed consolidations may prove to be stronger than acceptable, especially if somewhat larger than anticipated fiscal multipliers lead to a sizeable economic deceleration.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/164.

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    Length: 23
    Date of creation: 01 Jul 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/164

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    Related research

    Keywords: Fiscal sustainability; Developed countries; Economic models; Fiscal consolidation; equation; fiscal multiplier; public debt; fiscal policy; fiscal adjustment; fiscal tightening; calibration; fiscal measures; fiscal position; fiscal health; equations; fiscal balance; budget constraint; public expenditure; fiscal balances; taxation; primary deficit; statistics; fiscal indicators; optimization; fiscal loosening; fiscal factors; fiscal stance; fiscal effort; sustainable fiscal policy; public finances; government spending; fiscal variables; fiscal contractions; expansionary fiscal contractions; adjustment path; government expenditure; polynomial; expansionary fiscal; fiscal stimulus; predictions; structural fiscal; fiscal policies; primary fiscal balance; fiscal action; national budget; fiscal adjustments;

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    References

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    1. Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
    2. Nigel Andrew Chalk, 2002. "Structural Balances and All That," IMF Working Papers 02/101, International Monetary Fund.
    3. Stéphanie Guichard & Mike Kennedy & Eckhard Wurzel & Christophe André, 2007. "What Promotes Fiscal Consolidation: OECD Country Experiences," OECD Economics Department Working Papers 553, OECD Publishing.
    4. Casper van Ewijk & Nick Draper & Harry ter Rele & Ed Westerhout, 2006. "Ageing and the sustainability of Dutch public finances," CPB Special Publication 61, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Coenen, Günter & Mohr, Matthias & Straub, Roland, 2008. "Fiscal consolidation in the euro area: long-run benefits and short-run costs," Working Paper Series 0902, European Central Bank.
    6. Boris Cournède, 2007. "The Political Economy of Delaying Fiscal Consolidation," OECD Economics Department Working Papers 548, OECD Publishing.
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    Citations

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    Cited by:
    1. Roberto Tamborini, 2014. "Interest-Rate Spread and Public-Debt Dynamics in a Two-Country Monetary-Union Portfolio Model," Open Economies Review, Springer, vol. 25(2), pages 243-261, April.
    2. Łukasz Rawdanowicz, 2012. "Choosing the Pace of Fiscal Consolidation," OECD Economics Department Working Papers 992, OECD Publishing.
    3. Giuseppe Bertola & John Driffill & Harold James & Hans-Werner Sinn & Jan-Egbert Sturm & Ákos Valentinyi, 2014. "Chapter 3: Austerity: Hurting but Helping," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 75-90, 02.
    4. Roberto Tamborini, 2013. "The new fiscal rules for the EMU. Threats from heterogeneity and interdependence," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 10(3), pages 415-436, December.
    5. Andersen, Torben M., 2013. "Fiscal policy targeting under imperfect information," Journal of International Money and Finance, Elsevier, vol. 34(C), pages 114-130.

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