Does fairness matter for the success of fiscal consolidation?

Georgia Kaplanoglou, Vassilis Rapanos () and loanna C. Bardakas ()
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Georgia Kaplanoglou: University of Athens
loanna C. Bardakas: Bank of Greece

No 180, Working Papers from Bank of Greece

Abstract: Does it matter for the success of fiscal consolidation programmes that they are fair? This question has never been empirically addressed despite its profound importance especially since many developed countries have embarked on fiscal consolidation programmes, which in many cases have led to sizeable increases in unemployment and poverty, and are met with public dissatisfaction. Using a data set for 29 OECD countries over the period 1971-2009, we argue that fairness matters, namely that improving the targeting of social transfers and their effectiveness in terms of poverty alleviation, higher public expenditure on training and active labor market policies and programmes like social housing directed to the poor, even decreasing the VAT rate on necessities, improve the success probabilities of consolidation attempts. Introducing such concerns sheds new light on the prevailing view that the successful fiscal adjustments are those that rely on spending-cuts rather than on tax increases. The results of this paper provide empirical evidence that ameliorating the effects of adjustment, by supporting the weaker parts of society, is crucial for the success of fiscal consolidations and argues that "fair fiscal adjustments" may provide the double dividend of enhancing the probability of success of the adjustment and of promoting social cohesion.

Keywords: fiscal consolidation; success; fairness; expenditure; social transfers (search for similar items in EconPapers)
JEL-codes: D63 E62 H23 H50 H53 H62 I38 (search for similar items in EconPapers)
Pages: 33
Date: 2014-05
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pbe
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Does Fairness Matter for the Success of Fiscal Consolidation? (2015)
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