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Non-Keynesian effects of fiscal contraction in new member states

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  • Rzońca, Andrzej
  • Ciżkowicz, Piotr

Abstract

Many economists are convinced that longer-term benefits from fiscal consolidation are in a trade-off with short-term deceleration in output growth. However, more recent research suggests that curbing fiscal imbalances contributes to faster growth already in the short term. This paper is about such non-Keynesian effects. Section two systematizes theoretical explanations. Section three reviews previous empirical research. Section four uses panel estimation techniques to examine the consequences of fiscal consolidation in New Member States. This analysis provides evidence that in those countries fiscal consolidation contributed substantially to the acceleration of output growth even in the short term. However, the exact channels through which non-Keynesian effects occurred could not be unambiguously identified in the paper. Section five takes the new step of a qualitative analysis of the outcomes of strong fiscal adjustments in the countries under consideration. That analysis shows that their experiences were quite similar to those of developed countries. JEL Classification: E62, E65, C33

Suggested Citation

  • Rzońca, Andrzej & Ciżkowicz, Piotr, 2005. "Non-Keynesian effects of fiscal contraction in new member states," Working Paper Series 519, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:2005519
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    File URL: https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp519.pdf
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    References listed on IDEAS

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    1. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    2. David Humphrey & Henri Pages, 2005. "Settlement finality as a public good in large-value payment systems," Public Economics 0509003, EconWPA.
    3. Gruener Hans Peter & Hayo Bernd & Hefeker Carsten, 2009. "Unions, Wage Setting and Monetary Policy Uncertainty," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-25, October.
    4. Humphrey, David & Pagès, Henri, 2005. "Settlement finality as a public good in large-value payment systems," Working Paper Series 506, European Central Bank.
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    More about this item

    Keywords

    Fiscal consolidation; new Member States; non-Keynesian effects;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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