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Cross‐Country Spillovers from Fiscal Consolidations

Author

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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
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Suggested Citation

  • Antoine Goujard, 2017. "Cross‐Country Spillovers from Fiscal Consolidations," Fiscal Studies, Institute for Fiscal Studies, vol. 38, pages 219-267, June.
    • Handle: RePEc:ifs:fistud:v:38:y:2017:i::p:219-267
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    Cited by:

    1. Kodjovi Mawulikplimi Eklou & Marcelin Joanis & Patrick Richard, 2015. "A "Beggar-Thy-Neighbor" Effect in Public Debt? Evidence from cross-border spillover of fiscal consolidations," Cahiers de recherche 15-11, Departement d'économique de l'École de gestion à l'Université de Sherbrooke.
    2. Sangyup Choi & Davide Furceri & Chansik Yoon, 2021. "International Fiscal-Financial Spillovers:the Effect of Fiscal Shocks on Cross-Border Bank Lending," Open Economies Review, Springer, vol. 32(2), pages 259-290, April.
    3. Agnes Benassy-Quere, 2016. "Euro-Area Fiscal Stance: From Theory to Practical Implementation," CESifo Working Paper Series 6040, CESifo.
    4. Álvaro Pina, 2016. "Making public finances more growth and equity-friendly in the euro area," OECD Economics Department Working Papers 1316, OECD Publishing.
    5. Blagrave, Patrick & Vesperoni, Esteban, 2018. "The implications of China’s slowdown for international trade," Journal of Asian Economics, Elsevier, vol. 56(C), pages 36-47.
    6. Patrick Blagrave & Giang Ho & Ksenia Koloskova & Mr. Esteban Vesperoni, 2017. "Fiscal Spillovers: The Importance of Macroeconomic and Policy Conditions in Transmission," IMF Spillover Notes 2017/002, International Monetary Fund.
    7. Bajo-Rubio, Oscar & Gómez‐Plana, Antonio G., 2020. "Spending in social services in China: A multi-country analysis," GLO Discussion Paper Series 447, Global Labor Organization (GLO).
    8. Oscar Bajo-Rubio & Antonio G. Gómez-Plana, 2025. "Austerity and asymmetries in the fiscal policies of the Eurozone: the case of Southern Europe," International Economics and Economic Policy, Springer, vol. 22(2), pages 1-24, May.
    9. Philipp Heimberger, 2025. "Fiscal consolidation and its growth effects in euro area countries: past, present and future outlook," Review of Evolutionary Political Economy, Springer, vol. 6(3), pages 589-617, December.
    10. 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.
    11. Sascha Mierzwa, 2021. "Spillovers from Tax Shocks to the Euro Area," MAGKS Papers on Economics 202133, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    12. Alloza, Mario & Burriel, Pablo & Pérez, Javier J., 2019. "Fiscal policies in the euro area: Revisiting the size of spillovers," Journal of Macroeconomics, Elsevier, vol. 61(C), pages 1-1.
    13. Bechchani, Khalil, 2025. "When neighbors tighten belts: Exploring austerity’s spillover effects," Economics Letters, Elsevier, vol. 254(C).
    14. Mario Alloza & Jesús Gonzalo & Carlos Sanz, 2025. "Dynamic Effects of Persistent Shocks," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 40(4), pages 380-394, June.
    15. 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.
    16. Hory, Marie-Pierre, 2018. "Delayed mimicking: the timing of fiscal interactions in Europe," European Journal of Political Economy, Elsevier, vol. 55(C), pages 97-118.
    17. Heimberger Philipp & Welslau Lennard & Schütz Bernhard & Gechert Sebastian & Guarascio Dario & Zezza Francesco, 2024. "Debt Sustainability Analysis in Reformed EU Fiscal Rules: The Effect of Fiscal Consolidation on Growth and Public Debt Ratios," Intereconomics: Review of European Economic Policy, Sciendo, vol. 59(5), pages 276-283.
    18. Luis Ayala-Cañón & María Jesús Delgado-Rodríguez & Sonia De Lucas-Santos, 2022. "Synchronization and cyclicality of social spending in economic crises," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(4), pages 1153-1187, November.

    More about this item

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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