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The output effect of fiscal consolidations

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  • Alberto Alesina
  • Carlo Favero
  • Francesco Giavazzi

Abstract

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..Keywords: fiscal adjustment, output, confidence, investment JEL Classification: H60, E62

Suggested Citation

  • Alberto Alesina & Carlo Favero & Francesco Giavazzi, 2013. "The output effect of fiscal consolidations," Working Papers 478, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  • Handle: RePEc:igi:igierp:478
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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