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Walking Hand in Hand

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  • Laura Jaramillo
  • Carlo Cottarelli
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    Abstract

    Implementation of fiscal consolidation by advanced economies in coming years needs to take into account the short and long-run interactions between economic growth and fiscal policy. Many countries must reduce high public debt to GDP ratios that penalize longterm growth. However, fiscal adjustment is likely to hurt growth in the short run, delaying improvements in fiscal indicators, including deficits, debt, and financing costs. Revenue and expenditure policies are also critical in affecting productivity and employment growth. This paper discusses the complex relationships between fiscal policy and growth both in the short and in the long run.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/137.

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    Length: 29
    Date of creation: 01 May 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/137

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    Related research

    Keywords: Developed countries; Economic growth; Fiscal consolidation; public debt; fiscal adjustment; fiscal policy; fiscal tightening; debt ratio; central bank; fiscal accounts; central banks; fiscal multipliers; fiscal variables; taxation; fiscal multiplier; government debt; sovereign bond; public finances; government deficit; fiscal sustainability; aggregate demand; budget deficits; stock of debt; spending cuts; debt dynamics; fiscal performance; primary deficit; fiscal imbalances; debt reduction; expansionary fiscal; fiscal indicators; tax evasion; fiscal deficits; tax policy; budget deficit; fiscal position; discretionary fiscal policy; fiscal contractions; debt ratios; tax revenues; fiscal crisis; fiscal affairs department; tax increases; tax bases; fiscal austerity; foreign borrowing; primary fiscal balance; fiscal policies; expansionary fiscal contractions; reserve currencies; fiscal adjustment process; sovereign debt; fiscal expansion; fiscal adjustment effort; public debt reverse; debt sustainability; fiscal affairs; public deficits; fiscal consolidations; fiscal implications; fiscal crises; net debt; structural fiscal; expansionary fiscal contraction; sovereign defaults; reserve bank; tax burden; sovereign bonds; reduction in tax; fiscal data; fiscal policy management; debt stock; ratio of debt; tax rates; fiscal balance; debt database; taxation of labor; fiscal stimulus; fiscal contraction; fiscal adjustments;

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    References

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    1. Stephen Cecchetti & Madhusudan Mohanty & Fabrizio Zampolli, 2011. "The real effects of debt," BIS Working Papers 352, Bank for International Settlements.
    2. Roberto Perotti, 2011. "The "Austerity Myth": Gain Without Pain?," NBER Working Papers 17571, National Bureau of Economic Research, Inc.
    3. Edda Zoli & Silvia Sgherri, 2009. "Euro Area Sovereign Risk During the Crisis," IMF Working Papers 09/222, International Monetary Fund.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-78, May.
    5. Mathias Dolls & Clemens Fuest & Andreas Peichl, 2009. "Automatic Stabilizers and Economic Crisis: US vs. Europe," CESifo Working Paper Series 2878, CESifo Group Munich.
    6. Ruud de Mooij & Michael Keen, 2012. "'Fiscal Devaluation' and Fiscal Consolidation: The VAT in Troubled Times," NBER Working Papers 17913, National Bureau of Economic Research, Inc.
    7. Alberto Alesina & Silvia Ardagna, 2010. "Large Changes in Fiscal Policy: Taxes versus Spending," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 35-68 National Bureau of Economic Research, Inc.
    8. Sebastian Edwards, 1983. "LDC's Foreign Borrowing and Default Risk: An Empirical Investigation," NBER Working Papers 1172, National Bureau of Economic Research, Inc.
    9. Reinhart, Carmen M. & Rogoff, Kenneth S., 2010. "Growth in a Time of Debt," Scholarly Articles 11129154, Harvard University Department of Economics.
    10. Anja Baum & Marcos Poplawski-Ribeiro & Anke Weber, 2012. "Fiscal Multipliers and the State of the Economy," IMF Working Papers 12/286, International Monetary Fund.
    11. Arvind Krishnamurthy & Annette Vissing-Jorgensen, 2011. "The Effects of Quantitative Easing on Interest Rates: Channels and Implications for Policy," NBER Working Papers 17555, National Bureau of Economic Research, Inc.
    12. Miguel A. Segoviano Basurto & Carlos Caceres & Vincenzo Guzzo, 2010. "Sovereign Spreads," IMF Working Papers 10/120, International Monetary Fund.
    13. Alberto Alesina & Roberto Perotti, 1996. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," NBER Working Papers 5730, National Bureau of Economic Research, Inc.
    14. Edin, P-A. & Ohlsson, H., 1990. "Political Determinants Of Budget Deficits: Coalition Effects Versus Minority Effects," Papers 1990k, Uppsala - Working Paper Series.
    15. Emanuele Baldacci & Sanjeev Gupta & Carlos Mulas-Granados, 2012. "Reassessing the fiscal mix for successful debt reduction," Economic Policy, CEPR & CES & MSH, vol. 27(71), pages 365-406, 07.
    16. Fontana, Alessandro & Scheicher, Martin, 2010. "An analysis of euro area sovereign CDS and their relation with government bonds," Working Paper Series 1271, European Central Bank.
    17. C. Emre Alper & Lorenzo Forni & Marc Gerard, 2012. "Pricing of Sovereign Credit Risk," IMF Working Papers 12/24, International Monetary Fund.
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    Citations

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    Cited by:
    1. A. Affuso & V. Bravi, 2014. "La spesa pubblica in Italia prima e dopo la crisi," Economics Department Working Papers 2014-EP01, Department of Economics, Parma University (Italy).
    2. World Bank, 2013. "Reviving Romania's Growth and Convergence Challenges and Opportunities : A Country Economic Memorandum," World Bank Other Operational Studies 16036, The World Bank.
    3. Gustav A. Horn & Sebastian Gechert & Alexander Herzog-Stein & Katja Rietzler & Silke Tober & Sabine Stephan & Andrew Watt, 2013. "Inmitten der Krise des Euroraums - Herausforderungen für die Wirtschaftspolitik 2013," IMK Report 79-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

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