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Trust in government and fiscal adjustments

Author

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  • Dirk Bursian

    ()

  • Alfons Weichenrieder

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  • Jochen Zimmer

    ()

Abstract

The paper looks at the determinants of fiscal adjustments as reflected in the primary surplus of countries. Our conjecture is that governments will usually find it more attractive to pursue fiscal adjustments in a situation of relatively high growth, but based on a simple stylized model of government behavior, the expectation is that mainly high-trust governments will be in a position to defer consolidation to years with higher growth. Overall, our analysis of a panel of European countries provides support for this expectation. The difference in fiscal policies depending on government trust levels may help explaining why better governed countries have been found to have less severe business cycles. It suggests that trust and credibility play an important role not only in monetary policy, but also in fiscal policy. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Dirk Bursian & Alfons Weichenrieder & Jochen Zimmer, 2015. "Trust in government and fiscal adjustments," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(4), pages 663-682, August.
  • Handle: RePEc:kap:itaxpf:v:22:y:2015:i:4:p:663-682
    DOI: 10.1007/s10797-015-9363-2
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    References listed on IDEAS

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    19. Bursian, Dirk & Faia, Ester, 2013. "Trust in the monetary authority," SAFE Working Paper Series 14, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
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    Cited by:

    1. Boysen-Hogrefe, Jens, 2017. "Risk assessment on euro area government bond markets – The role of governance," Journal of International Money and Finance, Elsevier, vol. 73(PA), pages 104-117.
    2. Maarten van Rooij & Jakob de Haan, 2016. "Will helicopter money be spent? New evidence," DNB Working Papers 538, Netherlands Central Bank, Research Department.

    More about this item

    Keywords

    Trust; Debt sustainability; Fiscal reaction function; Euro area; EU; H62; E62;

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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