IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Output Effect of Fiscal Consolidations

  • Alberto Alesina
  • Carlo Favero
  • Francesco Giavazzi

The present paper argues that the correct experiment to evaluate the effects of a fiscal adjustment is the simulation of fiscal plans rather than of individual fiscal shocks. The simulation of the fiscal plans adopted by 16 OECD countries over a 30-year period supports the hypothesis that the effects of consolidations depend on their design. Fiscal adjustments based upon spending cuts are much less costly, in terms of output losses, than tax-based ones. Fiscal adjustments have especially low output costs when they consist of permanent rather than stop and go. The difference cannot be explained by accompanying policies, including monetary policy, and appears to be mainly due to the different response of business confidence and private investment.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.nber.org/papers/w18336.pdf
Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18336.

as
in new window

Length:
Date of creation: Aug 2012
Date of revision:
Handle: RePEc:nbr:nberwo:18336
Note: IFM ME
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Eric M. Leeper, 2010. "Monetary Science, Fiscal Alchemy," NBER Working Papers 16510, National Bureau of Economic Research, Inc.
  2. Nick Bloom & Stephen Bond & John Van Reenen, 2006. "Uncertainty and Investment Dynamics," CEP Discussion Papers dp0739, Centre for Economic Performance, LSE.
  3. Eric M. Leeper & Todd B. Walker & Shu-Chun Susan Yang, 2008. "Fiscal Foresight: Analytics and Econometrics," NBER Working Papers 14028, National Bureau of Economic Research, Inc.
  4. Rudebusch, G.D., 1996. "Do Measures of Monetary Policy in a VAR Make Sense?," Papers 269, Banca Italia - Servizio di Studi.
  5. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, 05.
  6. Alan J. Auerbach & Yuriy Gorodnichenko, 2010. "Measuring the Output Responses to Fiscal Policy," NBER Working Papers 16311, National Bureau of Economic Research, Inc.
  7. Lippi, Marco & Reichlin, Lucrezia, 1994. "VAR analysis, nonfundamental representations, blaschke matrices," Journal of Econometrics, Elsevier, vol. 63(1), pages 307-325, July.
  8. Karel Mertens & Morten Overgaard Ravn, 2011. "Understanding the Aggregate Effects of Anticipated and Unanticipated Tax Policy Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 27-54, January.
  9. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta-Eksten & Stephen J. Terry, 2014. "Really Uncertain Business Cycles," Working Papers 14-18, Center for Economic Studies, U.S. Census Bureau.
  10. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2012. "Fiscal Stimulus with Spending Reversals," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 878-895, November.
  11. Francesco Giavazzi & Michael McMahon, 2012. "The Household Effects of Government Spending," CAMA Working Papers 2012-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  12. Michael T. Owyang & Valerie A. Ramey & Sarah Zubairy, 2013. "Are Government Spending Multipliers Greater During Periods of Slack? Evidence from 20th Century Historical Data," NBER Working Papers 18769, National Bureau of Economic Research, Inc.
  13. Luisa Lambertini & Jose Tavares, 2003. "Exchange Rates and Fiscal Adjustments: Evidence from the OECD and Implications for EMU," Boston College Working Papers in Economics 576, Boston College Department of Economics.
  14. Jeffrey R. Brown & James M. Poterba, 2009. "Tax Policy and the Economy, Volume 23," NBER Books, National Bureau of Economic Research, Inc, number pote08-3, August.
  15. J. Bradford DeLong & Lawrence H. Summers, 2012. "Fiscal Policy in a Depressed Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(1 (Spring), pages 233-297.
  16. Gernot Müller & Giancarlo Corsetti & André Meier, 2009. "Fiscal Stimulus with Spending Reversals," IMF Working Papers 09/106, International Monetary Fund.
  17. Perotti, Roberto & Alesina, Alberto, 1997. "The Welfare State and Competitiveness," Scholarly Articles 4553027, Harvard University Department of Economics.
  18. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
  19. Daniel Leigh & Andrea Pescatori & Jaime Guajardo, 2011. "Expansionary Austerity New International Evidence," IMF Working Papers 11/158, International Monetary Fund.
  20. Rudebusch, Glenn D, 1998. "Do Measures of Monetary Policy in a VAR Make Sense? A Reply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 943-48, November.
  21. Alberto Alesina & Roberto Perotti, 1994. "The Welfare State and Competitiveness," NBER Working Papers 4810, National Bureau of Economic Research, Inc.
  22. Valerie A. Ramey, 2011. "Can Government Purchases Stimulate the Economy?," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 673-85, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:18336. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.