On the Identification and Macroeconomic Effects of Discretionary Changes in Fiscal Policy
Empirical studies on the effects of fiscal adjustments apply different approaches to identify discretionary changes in fiscal policy. While the results of one strand of literature suggest that the effects of fiscal adjustments on GDP are small or even positive, particularly for spending cuts (expansionary austerity), this strand of literature is under criticism because of an incomplete cyclical adjustment strategy. I compare the macroeconomic effects of fiscal adjustments using five different identification strategies for a panel of 30 OECD countries over the period 1980 to 2012 and show that the strategy chosen for identifying fiscal policy has a crucial impact on the estimated effects. My results suggest that large fiscal adjustments (both revenue and spending based) lead to economic contractions, after appropriate controlling for cyclical effects and one-off capital transfers. These findings indicate that a great deal of previous empirical research on fiscal adjustments and expansionary austerity is based on an incomplete measure of fiscal policy and needs to be reevaluated.
|Date of creation:||15 Aug 2013|
|Date of revision:||22 Nov 2013|
|Contact details of provider:|| Postal: |
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
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.:
- Olivier Blanchard & Roberto Perotti, 1999.
"An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output,"
NBER Working Papers
7269, National Bureau of Economic Research, Inc.
- Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1329-1368, November.
- Daniel Leigh & Andrea Pescatori & Jaime Guajardo, 2011. "Expansionary Austerity New International Evidence," IMF Working Papers 11/158, International Monetary Fund.
- Ardagna, Silvia, 2004. "Fiscal Stabilizations: When Do They Work and Why," Scholarly Articles 2580047, Harvard University Department of Economics.
- Alan J. Auerbach & Yuriy Gorodnichenko, 2010.
"Measuring the Output Responses to Fiscal Policy,"
NBER Working Papers
16311, National Bureau of Economic Research, Inc.
- Isabelle Joumard & Makoto Minegishi & Christophe André & Chantal Nicq & Robert W.R. Price, 2008. "Accounting for One-off Operations when Assessing Underlying Fiscal Positions," OECD Economics Department Working Papers 642, OECD Publishing.
- Heylen, Freddy & Hoebeeck, Annelies & Buyse, Tim, 2013. "Government efficiency, institutions, and the effects of fiscal consolidation on public debt," European Journal of Political Economy, Elsevier, vol. 31(C), pages 40-59.
- Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:52056. 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: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.