IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Fiscal Consolidation Contrasting Strategies & Lessons from International Experience

  • Joerg Bibow

    (University of Hamburg & The Levy Economics Institute)

Registered author(s):

    Contrasting Strategies & Lessons From International Experiences Jörg Bibow* Abstract: This paper analyzes the issues of public finance sustainability and suitability of strategies aimed at fiscal consolidation. Contrasting growth-based versus thrift-based consolidation strategies, it is argued that in the light of theory only the former promises success in large economies. Empirically, this study investigates the experiences with consolidation over the 1990s in the U.S., Japan, and the eurozone while scrutinizing disparities in economic performance and consolidation within Europe. It is argued that experiences of individual European Union (EU) member states may not be applicable to the eurozone as a whole and that the U.S. may provide the only relevant example for guiding policymaking in the EMU. The U.S. example features cooperative macroeconomic policies geared at steering domestic demand growth, with sustainable public finances as a consequence of their success. By contrast, the Maastricht regime features a counterproductive mix of thrift-based consolidation and inflation-obsessed monetary policyCultimately a recipe for disaster. Reforms should focus on securing cooperation and proper growth orientation in macroeconomic policymaking, with discipline being imposed in a more balanced way on both finance ministers and central bankers.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://econwpa.repec.org/eps/mac/papers/0402/0402014.pdf
    Download Restriction: no

    Paper provided by EconWPA in its series Macroeconomics with number 0402014.

    as
    in new window

    Length: 53 pages
    Date of creation: 06 Feb 2004
    Date of revision:
    Handle: RePEc:wpa:wuwpma:0402014
    Note: Type of Document - pdf; pages: 53
    Contact details of provider: Web page: http://econwpa.repec.org

    References listed on IDEAS
    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.:

    as in new window
    1. Francesco Giavazzi & Marco Pagano, 1995. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," NBER Working Papers 5332, National Bureau of Economic Research, Inc.
    2. Jörg Bibow, 2001. "Reflections on the Current Fashion For Central Bank Independence," Macroeconomics 0108004, EconWPA.
    3. Jorg Bibow, 2002. "The Markets versus the ECB, and the EURO's Plunge," Eastern Economic Journal, Eastern Economic Association, vol. 28(1), pages 45-57, Winter.
    4. Wynne Godley & Alex Izurieta, 2001. "As The Implosion Begins . . .? Prospects and Policies for the U.S. Economy: A Strategic View," Economics Strategic Analysis Archive 01-7, Levy Economics Institute.
    5. Kleinknecht, Alfred, 1998. "Is Labour Market Flexibility Harmful to Innovation?," Cambridge Journal of Economics, Oxford University Press, vol. 22(3), pages 387-96, May.
    6. Paul Masson & Michael Mussa, 1995. "Long-term tendencies in budget deficits and debt," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 5-55.
    7. Thomas Laubach, 2009. "New Evidence on the Interest Rate Effects of Budget Deficits and Debt," Journal of the European Economic Association, MIT Press, vol. 7(4), pages 858-885, 06.
    8. J. A. Kregel, 2000. "Krugman on the liquidity trap: why inflation won't bring recovery in Japan," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 1(1), pages 39-58, January-J.
    9. Giavazzi, Francesco & Pagano, Marco, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," CEPR Discussion Papers 417, C.E.P.R. Discussion Papers.
    10. Francesco Giavazzi & Tullio Jappelli & Marco Pagano, . "Searching for Non-Keynesian Effects of Fiscal Policy," Working Papers 136, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    11. Wynne Godley & Alex Izurieta, 2002. "Strategic Prospects and Policies for The U.S. Economy," Economics Strategic Analysis Archive 02-4, Levy Economics Institute.
    12. Kenneth N. Kuttner & Adam S. Posen, 2001. "The Great Recession: Lessons for Macroeconomic Policy from Japan," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 93-186.
    13. Michael Woodford, 2001. "Fiscal Requirements for Price Stability," NBER Working Papers 8072, National Bureau of Economic Research, Inc.
    14. Willem H. Buiter, 2003. "Deflation: Prevention and Cure," NBER Working Papers 9623, National Bureau of Economic Research, Inc.
    15. Buiter, W.H. & Corsetti, G. & Roubini, N., 1992. "Excessive Deficits: Sense and Nonsence in the Treaty of Maastricht," Papers 674, Yale - Economic Growth Center.
    16. Adam S. Posen, 2002. "The Looming Japanese Crisis," Policy Briefs PB02-05, Peterson Institute for International Economics.
    17. Philip Arestis & Kevin McCauley & Malcolm Sawyer, 2000. "An Alternative Stability Pact for the European Union," Macroeconomics 0004043, EconWPA.
    18. Jürgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers 148, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    19. Paul R. Krugman, 1998. "It's Baaack: Japan's Slump and the Return of the Liquidity Trap," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 137-206.
    20. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
    21. Benjamin Friedman, 2003. "The LM Curve: A Not-So-Fond Farewell," NBER Working Papers 10123, National Bureau of Economic Research, Inc.
    22. Richard J. Cebula & Ira S. Saltz, 1997. "Federal Government Budget Deficits and Real Long-Term Interest Rates in the United States: An Alternative Perspective," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 133(I), pages 19-27, March.
    23. Martin Feldstein, 2002. "The Role for Discretionary Fiscal Policy in a Low Interest Rate Environment," NBER Working Papers 9203, National Bureau of Economic Research, Inc.
    24. Shirakawa, Masaaki, 2001. "Monetary Policy Under the Zero Interest Rate Constraint and Balance Sheet Adjustment," International Finance, Wiley Blackwell, vol. 4(3), pages 463-89, Winter.
    25. John B. Taylor, 2000. "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 21-36, Summer.
    26. van Aarle, Bas & Garretsen, Harry, 2003. "Keynesian, non-Keynesian or no effects of fiscal policy changes? The EMU case," Journal of Macroeconomics, Elsevier, vol. 25(2), pages 213-240, June.
    27. Adam S. Posen, 1998. "Restoring Japan's Economic Growth," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 35.
    28. Wynne Godley & L. Randall Wray, . "Can Goldilocks Survive?," Economics Policy Note Archive 99-4, Levy Economics Institute.
    29. Thomas I. Palley, 2000. "The Case for Positive Low Inflation: Some Financial Market Considerations with Special Attention to the Problems of Japan," Eastern Economic Journal, Eastern Economic Association, vol. 26(3), pages 277-295, Summer.
    30. Joerg Bibow, 2003. "Is Europe Doomed to Stagnation? An Analysis of the Current Crisis and Recommendations for Reforming Macroeconomic Policymaking in Euroland," General Economics and Teaching 0306002, EconWPA.
    31. Milton Friedman, 2002. "Comment on Gaspar and Issing," Australian Economic Papers, Wiley Blackwell, vol. 41(4), pages 366-368, December.
    32. Buti, Marco & Franco, Daniele & Ongena, Hedwig, 1998. "Fiscal Discipline and Flexibility in EMU: The Implementation of the Stability and Growth Pact," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 81-97, Autumn.
    33. Gustav Adolf Horn & Wolfgang Scheremet, 1999. "Erfolgreiche Konsolidierung des amerikanischen Staatshaushalts - ein Beispiel für Europa?," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 66(12), pages 227-233.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:0402014. 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: (EconWPA)

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 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.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.