IDEAS home Printed from https://ideas.repec.org/p/oec/ecoaaa/936-en.html
   My bibliography  Save this paper

Fiscal Consolidation: Part 5. What Factors Determine the Success of Consolidation Efforts?

Author

Listed:
  • Margit Molnar

    (OECD)

Abstract

The global economic and financial crisis exacerbated the need for fiscal consolidation in many OECD countries. Drawing lessons from past episodes of fiscal consolidation, this paper investigates the economic environments, political settings and policy measures conducive to fiscal consolidation and debt stabilisation using probit, duration, truncated regression and bivariate Heckman selection methods. The empirical analysis builds on the earlier literature and extends it to include new aspects that may be of importance for consolidating governments. The empirical analysis confirms previous findings that the presence of fiscal rules – expenditure or budget balance rules – is associated with a greater probability of stabilising debt. Crucial in determining the causal link behind the association, the results also reveal an independent role for such rules over and above the impact of preferences for fiscal prudence. Also, while the analysis confirms that spending-driven adjustments vis-à-vis revenue-driven ones are more likely to stabilise debt, it also reveals that large consolidations need multiple instruments for consolidation to succeed. Sub-national governments, in particular state-level governments can contribute to the success of central government consolidation, if they co-operate. To ensure that state-level governments do co-operate, having the right regulatory framework with the extension of fiscal rules to sub-central government levels is important. Consolidation budgétaire: Partie 5. Quels sont les facteurs qui conditionnent la réussite des efforts d'assainissement budgétaire ? La crise economique et financiere mondiale a exacerbe l.imperatif d.assainir les finances publiques dans de nombreux pays de l.OCDE. Tirant les enseignements des episodes passes de reequilibrage budgetaire, ce document analyse les facteurs economiques, politiques et strategiques favorables a l.assainissement des finances publiques et a la stabilisation de la dette en utilisant la methode des probits, les modeles de duree, de regression tronquee et de selection en deux etapes de Heckman. L.analyse empirique s.inspire de travaux anterieurs qu.elle enrichit en integrant d.autres aspects qui peuvent etre importants pour les autorites qui optent pour une trajectoire d.assainissement budgetaire. Cette analyse empirique confirme les resultats anterieurs qui montraient que l.existence de regles budgetaires . regles de depenses ou d.equilibre budgetaire . est associee a une plus forte probabilite de stabilisation de la dette. Essentiels pour determiner le lien de causalite qui sous-tend cette association, les resultats revelent par ailleurs que ces regles jouent un role independant au-dela des effets d.une politique axee sur la prudence budgetaire. En outre, l.analyse confirme que les mesures de restriction des depenses sont plus susceptibles de stabiliser la dette que celles fondees sur l.augmentation des recettes, mais elle revele egalement que, pour reussir, les reequilibrages de grande ampleur doivent s.appuyer sur de multiple instruments. Les autorites infranationales, et notamment les autorites regionales ou des Etats, peuvent contribuer au succes des efforts deployes par l.administration centrale en cooperant. Pour garantir cette cooperation, il est important de disposer d.un cadre reglementaire adequat qui applique les regles budgetaires aux autorites infranationales.

Suggested Citation

  • Margit Molnar, 2012. "Fiscal Consolidation: Part 5. What Factors Determine the Success of Consolidation Efforts?," OECD Economics Department Working Papers 936, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:936-en
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1787/5k9h28mzp57h-en
    Download Restriction: no

    References listed on IDEAS

    as
    1. Andrea Boltho & Andrew Glyn, 2006. "Prudence or Profligacy: Deficits, Debt, and Fiscal Consolidation," Oxford Review of Economic Policy, Oxford University Press, vol. 22(3), pages 411-425, Autumn.
    2. Signe Krogstrup & Sébastien Wälti, 2008. "Do fiscal rules cause budgetary outcomes?," Public Choice, Springer, vol. 136(1), pages 123-138, July.
    3. Milesi-Ferretti, Gian Maria, 2004. "Good, bad or ugly? On the effects of fiscal rules with creative accounting," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 377-394, January.
    4. Vincent Koen & Paul van den Noord, 2005. "Fiscal Gimmickry in Europe: One-Off Measures and Creative Accounting," OECD Economics Department Working Papers 417, OECD Publishing.
    5. Balázs Égert, 2014. "Fiscal policy reaction to the cycle in the OECD: pro- or counter-cyclical?," Mondes en développement, De Boeck Université, vol. 0(3), pages 35-52.
    6. Alberto Alesina & Silvia Ardagna, 2010. "Large Changes in Fiscal Policy: Taxes versus Spending," NBER Chapters,in: Tax Policy and the Economy, Volume 24, pages 35-68 National Bureau of Economic Research, Inc.
    7. Carlos Mulas-Granados, 2005. "Fiscal Adjustments and the Short-Term Trade-Off between economic growth and equality," Hacienda Pública Española, IEF, vol. 172(1), pages 61-92, June.
    8. Charles Wyplosz, 2005. "Fiscal Policy: Institutions versus Rules," National Institute Economic Review, National Institute of Economic and Social Research, vol. 191(1), pages 64-78, January.
    9. Mark A Horton & George C. Tsibouris & Wojciech Maliszewski & Mark J Flanagan, 2006. "Experience with Large Fiscal Adjustments," IMF Occasional Papers 246, International Monetary Fund.
    10. Nathalie Girouard & Robert W. R. Price, 2004. "Asset Price Cycles, “One-Off” Factors and Structural Budget Balances," OECD Economics Department Working Papers 391, OECD Publishing.
    11. Stéphanie Guichard & Mike Kennedy & Eckhard Wurzel & Christophe André, 2007. "What Promotes Fiscal Consolidation: OECD Country Experiences," OECD Economics Department Working Papers 553, OECD Publishing.
    12. Douglas Sutherland & Peter Hoeller & Rossana Merola, 2012. "Fiscal Consolidation: Part 1. How Much is Needed and How to Reduce Debt to a Prudent Level?," OECD Economics Department Working Papers 932, OECD Publishing.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    consolidation budgétaire; dépenses publiques; fiscal consolidation; fiscal federalism; fiscal rules; fédéralisme budgétaire; government spending; règles budgétaires; taxation; taxation;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oec:ecoaaa:936-en. 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: (). General contact details of provider: http://edirc.repec.org/data/edoecfr.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.