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Modeling Optimal Fiscal Consolidation Paths in a Selection of European Countries

  • Daniel Kanda
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    For a number of countries - Italy, Netherlands, the United Kingdom, Germany, Ireland, and France - this paper develops an inter-temporal model that elicits the implied country-preferences over balancing the conflicting objectives of fiscal consolidation and reduction of economic slack. The model suggests that some front-loading of adjustment is desirable, although the extent would vary by country preferences. It also finds that proposed consolidations may prove to be stronger than acceptable, especially if somewhat larger than anticipated fiscal multipliers lead to a sizeable economic deceleration.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/164.

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    Length: 23
    Date of creation: 01 Jul 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/164
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    1. Stéphanie Guichard & Mike Kennedy & Eckhard Wurzel & Christophe André, 2007. "What Promotes Fiscal Consolidation: OECD Country Experiences," OECD Economics Department Working Papers 553, OECD Publishing.
    2. Boris Cournède, 2007. "The Political Economy of Delaying Fiscal Consolidation," OECD Economics Department Working Papers 548, OECD Publishing.
    3. Alesina, Alberto Francesco & Perotti, Roberto & Tavares, Jose, 1998. "The Political Economy of Fiscal Adjustments," Scholarly Articles 12553724, Harvard University Department of Economics.
    4. Alberto Alesina & Roberto Perotti & José Tavares, 1998. "The Political Economy of Fiscal Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 197-266.
    5. Coenen, Günter & Mohr, Matthias & Straub, Roland, 2008. "Fiscal consolidation in the euro area: Long-run benefits and short-run costs," Economic Modelling, Elsevier, vol. 25(5), pages 912-932, September.
    6. Nigel Andrew Chalk, 2002. "Structural Balances and All That: Which Indicators to Use in Assessing Fiscal Policy," IMF Working Papers 02/101, International Monetary Fund.
    7. Casper van Ewijk & Nick Draper & Harry ter Rele & Ed Westerhout, 2006. "Ageing and the sustainability of Dutch public finances," CPB Special Publication 61, CPB Netherlands Bureau for Economic Policy Analysis.
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