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Does fiscal consolidation hurt economic growth? Empirical evidence from Spanish regions

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  • Lago Peñas, Santiago
  • Vaquero-Garcia, Alberto
  • Sanchez-Fernandez, Patricio
  • Lopez-Bermudez, Beatriz

Abstract

This article provides empirical evidence on the effect of fiscal consolidation in decentralized countries. The focus on Spain is justified for three reasons. First, it is one of the OECD countries that has been the most affected by the Great Recession in terms of both GDP and public deficit. Second, it is one of the most decentralized countries in the world. Third, the compliance with fiscal consolidation targets has been very diverse across regions. Using both time series econometrics and the synthetic control method approach (SCM), the authors show that compliance with fiscal targets at the regional level has not involved lower GDP growth rates in the short run.

Suggested Citation

  • Lago Peñas, Santiago & Vaquero-Garcia, Alberto & Sanchez-Fernandez, Patricio & Lopez-Bermudez, Beatriz, 2019. "Does fiscal consolidation hurt economic growth? Empirical evidence from Spanish regions," Economics Discussion Papers 2019-34, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwedp:201934
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    References listed on IDEAS

    as
    1. Christiane Nickel & Andreas Tudyka, 2014. "Fiscal Stimulus in Times of High Debt: Reconsidering Multipliers and Twin Deficits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(7), pages 1313-1344, October.
    2. Pablo Hernández de Cos & Enrique Moral-Benito, 2016. "Fiscal multipliers in turbulent times: the case of Spain," Empirical Economics, Springer, vol. 50(4), pages 1589-1625, June.
    3. Ardagna, Silvia & Alesina, Alberto, 1998. "Tales of Fiscal Adjustment," Scholarly Articles 2579822, Harvard University Department of Economics.
    4. Alberto Alesina & Silvia Ardagna, 1998. "Tales of fiscal adjustment," Economic Policy, CEPR;CES;MSH, vol. 13(27), pages 487-545, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    fiscal consolidation; regional economic growth; great recession;

    JEL classification:

    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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