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Governments and Promised Fiscal Consolidations; Do They Mean What They Say?

Author

Listed:
  • Sanjeev Gupta
  • João Tovar Jalles
  • Carlos Mulas-Granados
  • Michela Schena

Abstract

This paper analyses the causes and consequences of fiscal consolidation promise gaps, defined as the distance between planned fiscal adjustments and actual consolidations. Using 74 consolidation episodes derived from the narrative approach in 17 advanced economies during 1978 – 2015, the paper shows that promise gaps were sizeable (about 0.3 percent of GDP per year, or 1.1 percent of GDP during an average fiscal adjustment episode). Both economic and political factors explain the gaps: for example, greater electoral proximity, stronger political cohesion and higher accountability were all associated with smaller promise gaps. Finally, governments which delivered on their fiscal consolidation plans were rewarded by financial markets and not penalized by voters.

Suggested Citation

  • Sanjeev Gupta & João Tovar Jalles & Carlos Mulas-Granados & Michela Schena, 2017. "Governments and Promised Fiscal Consolidations; Do They Mean What They Say?," IMF Working Papers 17/39, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:17/39
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    Citations

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    Cited by:

    1. Beetsma, Roel & Debrun, Xavier & Sloof, Randolph, 2017. "The political economy of fiscal transparency and independent fiscal councils," CEPR Discussion Papers 12181, C.E.P.R. Discussion Papers.
    2. Raju Huidrom & M. Ayhan Kose & Jamus J. Lim & Franziska L. Ohnsorge, 2019. "Why Do Fiscal Multipliers Depend on Fiscal Positions?," Koç University-TUSIAD Economic Research Forum Working Papers 1905, Koc University-TUSIAD Economic Research Forum.
    3. Ciminelli, Gabriele & Ernst, Ekkehard & Merola, Rossana & Giuliodori, Massimo, 2019. "The composition effects of tax-based consolidation on income inequality," European Journal of Political Economy, Elsevier, vol. 57(C), pages 107-124.
    4. Philipp Heimberger, 2018. "The Dynamic Effects of Fiscal Consolidation Episodes on Income Inequality," wiiw Working Papers 147, The Vienna Institute for International Economic Studies, wiiw.
    5. Beetsma, Roel & Furtuna, Oana & Giuliodori, Massimo, 2017. "Revenue- versus spending-based consolidation plans: the role of follow-up," CEPR Discussion Papers 12133, C.E.P.R. Discussion Papers.
    6. repec:eee:poleco:v:54:y:2018:i:c:p:145-166 is not listed on IDEAS
    7. World Bank Group, 2017. "Kenya Economic Update, December 2017," World Bank Other Operational Studies 29033, The World Bank.

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