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Does fiscal consolidation promote economic growth and employment? Evidence from the PIIGGS countries

Author

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  • Philip Arestis

    (University of Cambridge, UK)

  • AyÅŸe Kaya

    (Izmir Katip Çelebi University, Turkey)

  • Hüseyin Åžen

    (Ankara Yıldırım Beyazıt University, Turkey)

Abstract

Using annual data over the period 1980–2014, this paper attempts to provide an answer to the question of whether fiscal consolidation promotes growth and employment in the context of the PIIGGS countries (Portugal, Ireland, Italy, Greece, Great Britain, and Spain) by using the Bootstrap Granger causality analysis proposed by Kónya (2006), which allows testing for causality on each individual country separately, and by accounting for dependence across countries. Our findings indicate that in no country considered does fiscal consolidation promote growth. However, fiscal consolidation negatively affects employment in Portugal and Italy, whereas it positively influences employment in Great Britain. Based on our findings, we may suggest that the effects of fiscal consolidation on employment produce mixed results, varying from country to country.

Suggested Citation

  • Philip Arestis & AyÅŸe Kaya & Hüseyin Åžen, 2018. "Does fiscal consolidation promote economic growth and employment? Evidence from the PIIGGS countries," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 15(3), pages 289-312, November.
  • Handle: RePEc:elg:ejeepi:v:15:y:2018:i:3:p289-312
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    More about this item

    Keywords

    fiscal consolidation; growth; employment; PIIGGS countries; panel Granger causality analysis;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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