Budget Consolidation in a Difficult Environment – Ten Guidelines Plus a Preliminary Reality Check
There is evidence that a budget consolidation strategy can work with only a small and short lived negative impact on growth. However, this time consolidation is taking place in the aftermath of a deep crisis which had lead to increased levels of uncertainty. In addition the financial sector, as well as its regulation is under reconstruction. Firms and consumers are deleveraging, and many countries are trying to consolidate at the same time. We develop ten guidelines for consolidation during such a difficult economic period. We compare them to other guidelines published and, to the extent possible, cross-check whether the upcoming consolidation programs being implemented or revealed in various countries comply with our guidelines. We propose to follow a "high road" on cutting deficits, which includes an active growth enhancing component during the consolidation period. The "active component" should be financed by deeper cuts in subsidies, by eliminating obsolete government expenditure as well as by increasing the efficiency of the public sector. Taxes should not be raised permanently – a temporary contribution to consolidation will be needed, but tax structures in general should be made more growth and employment friendly.
|Date of creation:||22 Oct 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (+43 1) 798 26 01-0
Fax: (+43 1) 798 93 86
Web page: http://www.wifo.ac.at/
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.:
- Reinhart, Carmen M. & Rogoff, Kenneth S., 2010.
"Growth in a Time of Debt,"
11129154, Harvard University Department of Economics.
- António Afonso, 2010.
"Expansionary fiscal consolidations in Europe: new evidence,"
Applied Economics Letters,
Taylor & Francis Journals, vol. 17(2), pages 105-109, January.
- António Afonso, 2006. "Expansionary fiscal consolidations in Europe: new evidence," Working Papers Department of Economics 2006/18, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
- Afonso, António, 2006. "Expansionary fiscal consolidations in Europe: new evidence," Working Paper Series 0675, European Central Bank.
- Aiginger, Karl, 2010. "The Great Recession versus the Great Depression: stylized facts on siblings that were given different foster parents," Economics Discussion Papers 2010-9, Kiel Institute for the World Economy.
- European Commission, 2010. "Taxation trends in the European Union: 2010 edition," Taxation trends 2010, Directorate General Taxation and Customs Union, European Commission.
- Reyes Illera & Carlos Mulas-Granados, 2008. "What makes fiscal consolidations last? A survival analysis of budget cuts in Europe (1960–2004)," Public Choice, Springer, vol. 134(3), pages 147-161, March.
- Alberto Alesina & Silvia Ardagna, 2010.
"Large Changes in Fiscal Policy: Taxes versus Spending,"
in: Tax Policy and the Economy, Volume 24, pages 35-68
National Bureau of Economic Research, Inc.
- Alberto F. Alesina & Silvia Ardagna, 2009. "Large Changes in Fiscal Policy: Taxes Versus Spending," NBER Working Papers 15438, National Bureau of Economic Research, Inc.
- European Commission, 2013. "Taxation trends in the European Union: 2013 edition," Taxation trends 2013, Directorate General Taxation and Customs Union, European Commission.
- Stéphanie Guichard & Mike Kennedy & Eckhard Wurzel & Christophe André, 2007. "What Promotes Fiscal Consolidation: OECD Country Experiences," OECD Economics Department Working Papers 553, OECD Publishing.
When requesting a correction, please mention this item's handle: RePEc:wfo:wpaper:y:2010:i:381. 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: (Ilse Schulz)
If references are entirely missing, you can add them using this form.