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The Effects of Fiscal Contractions: A Circumstantial Approach

Author

Listed:
  • Hjelm, Göran

    (Department of Economics, Lund University)

Abstract

Why do some fiscal contractions generate a favorable macroeconomic outcome while others do not? Using both descriptive statistics and regression analysis of 19 OECD countries for the period 1970-97, this paper finds that preceding depreciations are important for a favorable macroeconomic outcome and, in particular, private consumption response to a fiscal contraction. The same appears to be true for high preceding growth (not the level) of the debt ratio. Hence, the results suggest that one has to be cautious when interpreting the causes of the effects of fiscal contractions as preceding circumstances matter.

Suggested Citation

  • Hjelm, Göran, 1999. "The Effects of Fiscal Contractions: A Circumstantial Approach," Working Papers 1999:009, Lund University, Department of Economics.
    • Handle: RePEc:hhs:lunewp:1999_009
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    Citations

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    Cited by:

    1. Andrea Zaghini, 2001. "Fiscal adjustments and economic performing: a comparative study," Applied Economics, Taylor & Francis Journals, vol. 33(5), pages 613-624.
    2. Hjelm, Goran, 2002. " Effects of Fiscal Contractions: The Importance of Preceding Exchange Rate Movements," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(3), pages 423-441, September.

    More about this item

    Keywords

    Fiscal policy; Devaluation; Debt; Panel data;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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