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Large Changes in Fiscal Policy: Taxes versus Spending


  • Alesina, Alberto Francesco
  • Ardagna, Silvia


We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.

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  • Alesina, Alberto Francesco & Ardagna, Silvia, 2010. "Large Changes in Fiscal Policy: Taxes versus Spending," Scholarly Articles 22801844, Harvard University Department of Economics.
  • Handle: RePEc:hrv:faseco:22801844

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    References listed on IDEAS

    1. Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 2002. "Fiscal Policy, Profits, and Investment," American Economic Review, American Economic Association, vol. 92(3), pages 571-589, June.
    2. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," NBER Chapters,in: NBER Macroeconomics Annual 1990, Volume 5, pages 75-122 National Bureau of Economic Research, Inc.
    3. Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
    4. Francesco Daveri & Guido Tabellini, 2000. "Unemployment, growth and taxation in industrial countries," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 47-104, April.
    5. Christina D. Romer & David H. Romer, 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," NBER Chapters,in: NBER Macroeconomics Annual 1989, Volume 4, pages 121-184 National Bureau of Economic Research, Inc.
    6. Alberto Alesina & Dorian Carloni & Giampaolo Lecce, 2012. "The Electoral Consequences of Large Fiscal Adjustments," NBER Chapters,in: Fiscal Policy after the Financial Crisis, pages 531-570 National Bureau of Economic Research, Inc.
    7. Ardagna, Silvia, 2007. "Fiscal Policy in Unionized Labor Markets," Scholarly Articles 2580048, Harvard University Department of Economics.
    8. repec:hrv:faseco:3353756 is not listed on IDEAS
    9. Ardagna, Silvia, 2007. "Fiscal policy in unionized labor markets," Journal of Economic Dynamics and Control, Elsevier, vol. 31(5), pages 1498-1534, May.
    10. Ardagna, Silvia, 2004. "Fiscal Stabilizations: When Do They Work and Why," Scholarly Articles 2580047, Harvard University Department of Economics.
    11. Ardagna, Silvia, 2004. "Fiscal stabilizations: When do they work and why," European Economic Review, Elsevier, vol. 48(5), pages 1047-1074, October.
    12. Kevin A. Hassett & Andrew G. Biggs & Matt Jensen, 2010. "A Guide for Deficit Reduction in the United States Based on Historical Consolidations That Worked," AEI Economics Working Papers 16693, American Enterprise Institute.
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