The output effect of fiscal consolidations

Francesco Giavazzi, Alberto Alesina and Carlo Favero

No 9105, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Fiscal consolidations achieved by means of spending cuts are much less costly in terms of output losses than tax-based ones. The difference cannot be explained by accompanying policies, including monetary policy, and it is mainly due to the different response of business confidence and private investment. We obtain these results by studying the effects of the adoption of fiscal consolidation plans (rather than isolated shocks), that is combinations of tax increases and spending cuts, some unanticipated, other anticipated, in a sample of 16 OECD economies.

Keywords: Confidence; Fiscal adjustment; investment; Output (search for similar items in EconPapers)
JEL-codes: E62 H60 (search for similar items in EconPapers)
Date: 2012-08
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (90)

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Related works:
Working Paper: The output effect of fiscal consolidations (2013)
Working Paper: The output effect of fiscal consolidations (2012)
Working Paper: The Output Effect of Fiscal Consolidations (2012)
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