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Are there change-points in the likelihood of a fiscal consolidation ending?

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Author Info

  • Luca Agnello

    ()
    (University of Palermo, Department of Economics, Business and Finance)

  • Vítor Castro

    ()
    (Universidade de Coimbra - NIPE)

  • Ricardo M. Sousa

    ()
    (Universidade do Minho - NIPE)

Abstract

Building on a narrative approach to identify episodes of fiscal consolidation, data for a group of 17 industrial countries over the period 1978-2009 and both continuous-time and discrete-time duration models, we find evidence suggesting that the likelihood of a fiscal consolidation ending increases over time, but only for programs that less than six years. Additionally, fiscal consolidations tend to last longer in non-European than in European countries. Our results emphasize that chronic fiscal imbalances might lead to a vicious austerity cycle, while discipline in the behaviour of fiscal authorities is a means of achieving credible and shorter adjustment measures.

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Bibliographic Info

Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 18/2012.

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Date of creation: 2012
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Handle: RePEc:nip:nipewp:18/2012

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Keywords: Fiscal Consolidation; Duration Analysis; Weibull Model; Duration Dependence; Change-Points.;

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Cited by:
  1. De Koning, Kees, 2013. "An income gap theory and its effects on unemployment and economic growth," MPRA Paper 46098, University Library of Munich, Germany, revised 08 Apr 2013.

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