This ppaer studies how the composition of fiscal adjustments influences their likelihood of success, defined as a long lasting deficit reduction, and their macroeconomic consequences. We find that fiscal adjustments which rely primarily on spending cuts on transfers and the government wage bill have a better chance of being successful and are expansionary. On the contrary fiscal adjustments which rely primarily on tax increases and cuts in public investment tend not to last and are contractionary. We discuss alternate explanations for these findings by studying both a full sample of OECD countries and by focusing on three case studies: Denmark, Ireland and Italy.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
5730.
Length: Date of creation: Aug 1996 Date of revision: Publication status: published as Alesina, Alberto and Roberto Perotti. "Fiscal Adjustments In OECD Countries: Composition And Macroeconomic Effects," International Monetary Fund Staff Papers, 1997, v44(2,Jun), 210-248. Handle: RePEc:nbr:nberwo:5730
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Find related papers by JEL classification: H1 - Public Economics - - Structure and Scope of Government E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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