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Macroeconomic and distributional effects of fiscal consolidation measures in EU countries

Author

Listed:
  • Philipp Heimberger

    (The Vienna Institute for International Economic Studies, wiiw)

  • Anna Matzner

    (The Vienna Institute for International Economic Studies, wiiw)

Abstract

We provide new evidence on the effects of fiscal consolidation measures on output, unemployment, income inequality and consumer price inflation. To identify causal impacts, we use a narrative-based instrumental variable strategy drawing on historical records of exogenous fiscal changes motivated by deficit reduction, covering 12 EU countries from 1980 to 2020. Our results for the short to medium run show that fiscal consolidations (a) lower real output; (b) raise the unemployment rate; (c) increase income inequality; and d) reduce consumer price inflation. Contractionary macroeconomic effects are stronger during recessions than during non-recession periods.

Suggested Citation

  • Philipp Heimberger & Anna Matzner, 2026. "Macroeconomic and distributional effects of fiscal consolidation measures in EU countries," wiiw Working Papers 270, The Vienna Institute for International Economic Studies, wiiw.
    • Handle: RePEc:wii:wpaper:270
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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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