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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 Kiel).
    • Handle: RePEc:zbw:ifwedp:201934
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    1. Antonio Spilimbergo & Steve Symansky & Olivier Blanchard & Carlo Cottarelli, 2009. "Fiscal Policy For The Crisis," CESifo Forum, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 10(02), pages 26-32, July.
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    Cited by:

    1. Daniel Aparicio-Pérez & Maria Teresa Balaguer-Coll & Emili Tortosa-Ausina, 2021. "Politics against Economics: The Case of Spanish Regional Financing," Working Papers 2021/15, Economics Department, Universitat Jaume I, Castellón (Spain).

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    More about this item

    Keywords

    fiscal consolidation; regional economic growth; great recession;
    All these keywords.

    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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