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Are there change-points in the likelihood of a fiscal consolidation ending?

Building on a narrative approach to identify episodes of fiscal consolidation, data for a group of 17 industrial countries over the period 1978-2009 and both continuous-time and discrete-time duration models, we find evidence suggesting that the likelihood of a fiscal consolidation ending increases over time, but only for programs that less than six years. Additionally, fiscal consolidations tend to last longer in non-European than in European countries. Our results emphasize that chronic fiscal imbalances might lead to a vicious austerity cycle, while discipline in the behaviour of fiscal authorities is a means of achieving credible and shorter adjustment measures.

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File URL: http://www3.eeg.uminho.pt/economia/nipe/docs/2012/NIPE_WP_18_2012.pdf
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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 18/2012.

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Date of creation: 2012
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Handle: RePEc:nip:nipewp:18/2012
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Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal

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