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Does Fairness Matter for the Success of Fiscal Consolidation?

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  • Georgia Kaplanoglou
  • Vassilis T. Rapanos
  • Ioanna C. Bardakas

Abstract

type="main"> Does it matter for fiscal consolidation programs to be fair in order to be successful? This question has never been empirically addressed despite its profound importance especially since many developed countries have embarked on fiscal consolidation programs, which in many cases have led to sizeable increases in unemployment and poverty, and are met with public dissatisfaction. Using a data set for 29 OECD countries over the period 1971–2009, we argue that fairness matters, namely that improving the targeting of social transfers and their effectiveness in terms of poverty alleviation, higher public expenditure on training and active labor market programs and programs like social housing directed to the poor, even decreasing the VAT rate on necessities, improve the success probabilities of consolidation attempts. Introducing such concerns sheds new light on the prevailing view that the successful fiscal adjustments are those that rely on spending-cuts rather than on tax increases. The results of this paper provide empirical evidence that ameliorating the effects of adjustment, by supporting the weaker parts of society, is crucial for the success of fiscal consolidations and argues that “fair fiscal adjustments” may provide the double dividend of enhancing the probability of success of the adjustment and of promoting social cohesion.

Suggested Citation

  • Georgia Kaplanoglou & Vassilis T. Rapanos & Ioanna C. Bardakas, 2015. "Does Fairness Matter for the Success of Fiscal Consolidation?," Kyklos, Wiley Blackwell, vol. 68(2), pages 197-219, May.
  • Handle: RePEc:bla:kyklos:v:68:y:2015:i:2:p:197-219
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    File URL: http://hdl.handle.net/10.1111/kykl.12080
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    Citations

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    Cited by:

    1. Piotr Ciżkowicz & Andrzej Rzońca & Rafał Trzeciakowski, 2015. "Windfall of Low Interest Payments and Fiscal Sustainability in the Euro Area: Analysis through Panel Fiscal Reaction Functions," Kyklos, Wiley Blackwell, vol. 68(4), pages 475-510, November.
    2. repec:oup:oxecpp:v:69:y:2017:i:3:p:632-654. is not listed on IDEAS
    3. Alari PaulusBy & Francesco Figari & Holly Sutherland, 2017. "The design of fiscal consolidation measures in the European Union: distributional effects and implications for macro-economic recovery," Oxford Economic Papers, Oxford University Press, vol. 69(3), pages 632-654.
    4. Conrad Scheibe, 2016. "Fiscal Consolidations and Their Effects on Income Inequality," UCL SSEES Economics and Business working paper series 2016-4, UCL School of Slavonic and East European Studies (SSEES).
    5. Manos Matsaganis & Chrysa Leventi, 2014. "Distributive Effects of the Crisis and Austerity in Seven EU Countries," ImPRovE Working Papers 14/04, Herman Deleeck Centre for Social Policy, University of Antwerp.
    6. repec:bla:kyklos:v:70:y:2017:i:4:p:622-640 is not listed on IDEAS
    7. Ive Marx & Brian Nolan & Javier Olivera, 2014. "The Welfare State and Anti-Poverty Policy in Rich Countries," Working Papers 1403, Herman Deleeck Centre for Social Policy, University of Antwerp.
    8. Philipp Heimberger, 2018. "The Dynamic Effects of Fiscal Consolidation Episodes on Income Inequality," wiiw Working Papers 147, The Vienna Institute for International Economic Studies, wiiw.
    9. Antonakakis, Nikolaos & Collins, Alan, 2014. "Does Fiscal Consolidation Really Get You Down? Evidence from Suicide Mortality," Department of Economics Working Paper Series 4294, WU Vienna University of Economics and Business.
    10. Tassos Giannitsis & Stavros Zografakis, 2015. "Greece: Solidarity And Adjustment In Times Of Crisis," IMK Studies 38-2015, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    11. Schaltegger, Christoph A. & Weder, Martin, 2014. "Austerity, inequality and politics," European Journal of Political Economy, Elsevier, vol. 35(C), pages 1-22.
    12. Goranitis, Ilias & Siskou, Olga & Liaropoulos, Lycourgos, 2014. "Health policy making under information constraints: An evaluation of the policy responses to the economic crisis in Greece," Health Policy, Elsevier, vol. 117(3), pages 279-284.

    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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