Lessons Learned from Tax versus Expenditure Based Fiscal Consolidation in the European Transition Economies
AbstractEuropean Union member countries are currently exposed to negative implications of the economic and debt crisis. Questions associated with disputable implications of fiscal incentives seem to be contrary to the crucial need of the effective fiscal consolidation that is necessary to reduce excessive fiscal deficits and high sovereign debts. While challenges addressed to the fiscal policy and its anti-cyclical potential rose steadily but not desperately since the beginning of the economic crisis, the call for fiscal consolidation became urgent almost immediately and this need significantly strengthen after the debt crisis contagion flooded Europe. In the paper we provide an overview of main trends in public budgets and sovereign debts in ten European transition economies during last two decades. We identify episodes of successful and unsuccessful (cold showers versus gradual) fiscal (expenditure versus revenue based) consolidations by analyzing effects of improvements in cyclically adjusted primary balance on the sovereign debt ratio reduction. We also estimate VAR model to analyze effects of fiscal shocks (based on one standard deviation in total expenditure, direct and indirect taxes) to real output. It is expected that responses of real output to different types of (consolidating) fiscal shocks may vary and thus provide more precise ideas about a feasibility (i.e. side effects on the macroeconomic performance) of expenditure versus revenue based fiscal consolidation episodes. Economic effects of fiscal consolidating adjustments are evaluated for two periods (pre-crisis and extended) to reveal crisis effects on fiscal consolidation efforts.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 46792.
Date of creation: Feb 2013
Date of revision:
Publication status: Published in Journal of Applied Economic Sciences 1.8(2013): pp. 73-98
fiscal policy adjustments; fiscal consolidation; cyclically adjusted primary balance; government expenditures; tax revenues; unrestricted VAR; Cholesky decomposition; SVAR; structural shocks; impulse-response function;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
This paper has been announced in the following NEP Reports:
- NEP-ACC-2013-05-11 (Accounting & Auditing)
- NEP-ALL-2013-05-11 (All new papers)
- NEP-EEC-2013-05-11 (European Economics)
- NEP-PBE-2013-05-11 (Public Economics)
- NEP-TRA-2013-05-11 (Transition Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Olivier Blanchard & Roberto Perotti, 2002.
"An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output,"
The Quarterly Journal of Economics,
MIT Press, vol. 117(4), pages 1329-1368, November.
- Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc.
- Salvador Barrios & Sven Langedijk & Lucio Pench, 2010. "EU fiscal consolidation after the financial crisis. Lessons from past experiences," European Economy - Economic Papers 418, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
- Andrew Mountford & Harald Uhlig, 2009.
"What are the effects of fiscal policy shocks?,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 24(6), pages 960-992.
- Mountford, Andrew & Uhlig, Harald, 2002. "What are the Effects of Fiscal Policy Shocks?," CEPR Discussion Papers 3338, C.E.P.R. Discussion Papers.
- Andrew Mountford & Harald Uhlig, 2005. "What are the Effects of Fiscal Policy Shocks?," SFB 649 Discussion Papers SFB649DP2005-039, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Mountford, A.W. & Uhlig, H.F.H.V.S., 2002. "What are the Effects of Fiscal Policy Shocks?," Discussion Paper 2002-31, Tilburg University, Center for Economic Research.
- Tom Doan, . "RATS programs to replicate Mountford and Uhlig JAE 2009 sign-constrained VAR," Statistical Software Components RTZ00121, Boston College Department of Economics.
- Andrew Mountford & Harald Uhlig, 2008. "What are the Effects of Fiscal Policy Shocks?," NBER Working Papers 14551, National Bureau of Economic Research, Inc.
- Burnside, Craig & Eichenbaum, Martin & Fisher, Jonas D. M., 2004.
"Fiscal shocks and their consequences,"
Journal of Economic Theory,
Elsevier, vol. 115(1), pages 89-117, March.
- Mihai ANTONESCU & Simona MANEA & Ligia ANTONESCU, 2008. "Fiscal Aspects Regarding Taxing The Incomes Of Nonï¿½Residents In Romania," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(4(6)_Wint).
- Rajmund MIRDALA, 2009.
"Effects Of Fiscal Policy Shocks In The European Transition Economies,"
Journal of Applied Research in Finance Bi-Annually,
ASERS Publishing, vol. 0(2), pages 141-157, December.
- Mirdala, Rajmund, 2009. "Effects of Fiscal Policy Shocks in the European Transition Economies," MPRA Paper 19481, University Library of Munich, Germany.
- Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
- Christina D. Romer & David H. Romer, 2007.
"The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks,"
NBER Working Papers
13264, National Bureau of Economic Research, Inc.
- Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
- Altar, Moisa & Necula, Ciprian & Bobeica, Gabriel, 2010. "Estimating The Cyclically Adjusted Budget Balance For The Romanian Economy. A Robust Approach," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 79-99, July.
- Mirdala, Rajmund, 2013. "Fiscal Imbalances and Current Account Adjustments in the European Transition Economies," MPRA Paper 50362, University Library of Munich, Germany.
If references are entirely missing, you can add them using this form.