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Cross-Country Spillovers from Fiscal Consolidations

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  • Antoine Goujard

Abstract

In many OECD countries, government debt reached levels over recent years that call for reduction over the medium to longer term to ensure public finance sustainability. This paper investigates the international transmission of fiscal consolidation shocks via trade flows. Using a measure of exogenous fiscal shocks in export markets, fiscal consolidation spillovers are found to slow domestic growth and decrease employment. When fiscal consolidation efforts are synchronised across partner countries, fiscal policies have large spillover effects on output. Spillovers of fiscal consolidations on growth are found to be initially larger between countries belonging to currency unions, though this larger impact vanishes over the medium term. Larger spillovers of fiscal consolidation coincide with stronger shifts in bilateral trade flows in currency unions in the short term, despite smaller adjustments in relative exchange rates. Spillovers of fiscal consolidation are also found to be more detrimental to domestic growth during economic downturns in export markets. Les répercussions internationales des consolidations fiscales Dans de nombreux pays de l’OCDE, la dette publique a récemment atteint des niveaux appelant sa réduction sur le moyen à long terme afin d’assurer la soutenabilité des finances publiques. Ce document étudie la transmission entre pays des chocs de politique fiscale par les flux commerciaux. Les politiques d’assainissement budgétaire dans les marchés d’exports apparaissent réduire la croissance domestique et l’emploi, lorsqu’une mesure exogène des politiques fiscales est utilisée. Si les efforts d’assainissement budgétaire sont synchronisés dans les pays partenaires, ceux-ci peuvent avoir des effets importants sur la croissance. Les répercussions des consolidations fiscales apparaissent initialement plus élevées entre les pays qui partagent la même monnaie, mais cet effet additionnel s’estompe sur le moyen terme. Les plus forts mouvements des flux commerciaux au sein des unions monétaires contribuent à ces effets externes plus importants à court terme bien que les ajustements des taux de changes réels soient plus faibles. Les consolidations fiscales dans les marchés d’exports apparaissent également avoir des répercussions plus importantes sur la croissance domestique lorsque les marchés d’exports sont en récession.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 1099.

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Date of creation: 06 Dec 2013
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Handle: RePEc:oec:ecoaaa:1099-en

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Keywords: fiscal policy; fiscal consolidation; trade spillovers; international spillovers; effets externes; politique fiscale; intégration commerciale; assainissement budgétaire;

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Cited by:
  1. Manos Matsaganis & Chrysa Leventi, 2014. "Distributive Effects of the Crisis and Austerity in Seven EU Countries," ImPRovE Working Papers, Herman Deleeck Centre for Social Policy, University of Antwerp 14/04, Herman Deleeck Centre for Social Policy, University of Antwerp.
  2. Boris Cournède & Antoine Goujard & Álvaro Pina, 2013. "How to Achieve Growth- and Equity-friendly Fiscal Consolidation?: A Proposed Methodology for Instrument Choice with an Illustrative Application to OECD Countries," OECD Economics Department Working Papers 1088, OECD Publishing.

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