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The output effect of fiscal consolidations

  • Alesina, Alberto F
  • Favero, Carlo A.
  • Giavazzi, Francesco

Fiscal consolidations achieved by means of spending cuts are much less costly in terms of output losses than tax-based ones. The difference cannot be explained by accompanying policies, including monetary policy, and it is mainly due to the different response of business confidence and private investment. We obtain these results by studying the effects of the adoption of fiscal consolidation plans (rather than isolated shocks), that is combinations of tax increases and spending cuts, some unanticipated, other anticipated, in a sample of 16 OECD economies.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9105.

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Date of creation: Aug 2012
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Handle: RePEc:cpr:ceprdp:9105
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