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A "Beggar-Thy-Neighbor" Effect in Public Debt? Evidence from cross-border spillover of fiscal consolidations

Listed author(s):
  • Kodjovi Mawulikplimi Eklou

    ()

    (Département d'économique, Université de Sherbrooke)

  • Marcelin Joanis

    ()

    (Department of Mathematics and Industrial Engineering, Polytechnique Montréal)

  • Patrick Richard

    ()

    (Département d'économique, Université de Sherbrooke)

In a globalized world, countries are exposed to policy shocks from abroad. This paper investigates the cross-border effect of fiscal consolidations taking place in two safe assets countries (Germany and the USA). Cross-border spillovers are defined as the results of fiscal consolidation shocks in Germany or USA which are transmitted to peripheral countries. We consider two levels of analysis: the external effect of US fiscal consolidations on other OECD countries and the external effect of German fi scal consolidations on other Eurozone countries. The "beggar-thy-neighbor" effect in this context means that a reduction of the public debt in a safe asset country as a consequence of a fiscal consolidation plan may generate an increase in the public debt abroad. Our empirical analysis in a sample of 27 OECD countries over the period 1980 - 2007 shows an evidence of a "beggar-thy-neighbor" effect in public debts. We find empirical supports for the mechanism both at the OECD and the Eurozone levels.

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File URL: http://gredi.recherche.usherbrooke.ca/wpapers/GREDI-1511.pdf
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Paper provided by Departement d'Economique de l'École de gestion à l'Université de Sherbrooke in its series Cahiers de recherche with number 15-11.

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Length: 46 pages
Date of creation: Sep 2015
Handle: RePEc:shr:wpaper:15-11
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  1. Roel Beetsma & Massimo Giuliodori & Franc Klaassen, 2006. "Trade spill-overs of fiscal policy in the European Union: a panel analysis," Economic Policy, CEPR;CES;MSH, vol. 21(48), pages 639-687, October.
  2. Strauch, Rolf & Paesani, Paolo & Kremer, Manfred, 2006. "Public debt and long-term interest rates: the case of Germany, Italy and the USA," Working Paper Series 656, European Central Bank.
  3. Christina D. Romer & David H. Romer, 2010. "The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks," American Economic Review, American Economic Association, vol. 100(3), pages 763-801, June.
  4. Antoine Goujard, 2013. "Cross-Country Spillovers from Fiscal Consolidations," OECD Economics Department Working Papers 1099, OECD Publishing.
  5. Alan J. Auerbach & Yuriy Gorodnichenko, 2013. "Output Spillovers from Fiscal Policy," American Economic Review, American Economic Association, vol. 103(3), pages 141-146, May.
  6. James Cloyne, 2013. "Discretionary Tax Changes and the Macroeconomy: New Narrative Evidence from the United Kingdom," American Economic Review, American Economic Association, vol. 103(4), pages 1507-1528, June.
  7. International Monetary Fund, 2011. "Government Debt Issuance in the Euro Area; The Impact of the Financial Crisis," IMF Working Papers 11/21, International Monetary Fund.
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