IDEAS home Printed from https://ideas.repec.org/p/bde/wpaper/1102.html
   My bibliography  Save this paper

Endogenous fiscal consolidations

Author

Listed:
  • Pablo Hernández de Cos

    () (Banco de España)

  • Enrique Moral-Benito

    () (Banco de España)

Abstract

There is evidence in the literature of fiscal consolidation episodes producing (non-Keynesian) expansionary effects (e.g. Alesina and Ardagna, 1998). We replicate this result for a panel of OECD countries under exogeneity of the fiscal tightening decision, and provide evidence that this decision is endogenous to GDP so that the exogeneity assumption might be inappropriate. Once this endogeneity is taken into consideration, we find that fiscal consolidations have a negative impact on GDP as expected in a Keynesian framework. We also investigate the determinants of successful consolidations. In particular, we use model averaging to overcome the problem of model uncertainty, and conclude that economic recovery and cuts in public wages are the most important ingredients of a consolidation program for successfully reducing budget deficits.

Suggested Citation

  • Pablo Hernández de Cos & Enrique Moral-Benito, 2011. "Endogenous fiscal consolidations," Working Papers 1102, Banco de España;Working Papers Homepage.
    • Handle: RePEc:bde:wpaper:1102
    as

    Download full text from publisher

    File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/11/Fich/dt1102e.pdf
    File Function: First version, March 2011
    Download Restriction: no

    References listed on IDEAS

    as
    1. Xavier Sala-I-Martin & Gernot Doppelhofer & Ronald I. Miller, 2004. "Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach," American Economic Review, American Economic Association, vol. 94(4), pages 813-835, September.
    2. Moral-Benito, Enrique, 2010. "Model averaging in economics," MPRA Paper 26047, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The outcome bias
      by chris dillow in Stumbling and Mumbling on 2014-01-02 20:14:17

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Luca Agnello & Ricardo M. Sousa, 2012. "Fiscall Adjustments and Income Inequality:A First Assessment," NIPE Working Papers 19/2012, NIPE - Universidade do Minho.
    2. Òscar Jordà & Alan M. Taylor, 2016. "The Time for Austerity: Estimating the Average Treatment Effect of Fiscal Policy," Economic Journal, Royal Economic Society, vol. 126(590), pages 219-255, February.
    3. Szilárd Benk & Zoltán M. Jakab, 2012. "Non-Keynesian Effects of Fiscal Consolidation: An Analysis with an Estimated DSGE Model for the Hungarian Economy," OECD Economics Department Working Papers 945, OECD Publishing.
    4. Luca Agnello & Ricardo M. Sousa, 2011. "Fiscal Consolidation and Income Inequality," NIPE Working Papers 34/2011, NIPE - Universidade do Minho.
    5. Salvatore Dell'Erba & Marcos Poplawski-Ribeiro & Ksenia Koloskova, 2014. "Medium-Term Fiscal Multipliers during Protracted Recessions," IMF Working Papers 14/213, International Monetary Fund.
    6. International Monetary Fund, 2015. "Belgium; Selected Issues," IMF Staff Country Reports 15/71, International Monetary Fund.
    7. David Lodge & Marta Rodriguez-Vives, 2013. "How long can austerity persist? The factors that sustain fiscal consolidations," European Journal of Government and Economics, Europa Grande, vol. 2(1), pages 5-24, June.
    8. Douglas Sutherland & Peter Hoeller & Rossana Merola, 2012. "Fiscal Consolidation: Part 1. How Much is Needed and How to Reduce Debt to a Prudent Level?," OECD Economics Department Working Papers 932, OECD Publishing.
    9. Yang, Weonho & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Macroeconomic effects of fiscal adjustment: A tale of two approaches," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 31-60.
    10. Munkacsi, Zsuzsa, 2015. "Fiscal austerity, unemployment and family firms," Discussion Papers 06/2015, Deutsche Bundesbank.

    More about this item

    Keywords

    Fiscal consolidation; panel data; endogeneity; model averaging;

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bde:wpaper:1102. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (María Beiro. Electronic Dissemination of Information Unit. Research Department. Banco de España). General contact details of provider: http://www.bde.es/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.