Effects of fiscal consolidations in Latin America

Andre Diniz

No 423, Textos para discussão from FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil)

Abstract: We use new data on cyclically adjusted primary balances for Latin America and the Caribbean to estimate e ects of scal consolidations on GDP and some of its components. Identi cation is conducted through a doubly-robust estimation procedure that controls for non-randomness in the 'treatment assignment' by inverse probability weighting and impulse responses are generated by local projections. Results suggest output contraction by more than one percent on impact, with economy starting to recover from the second year on. Composition e ects indicate that revenue-based adjustments are way more contractionary than expenditure-based ones. Disentangling efects between demand components, we nd consumption being in general less responsive to consolidations than investment, although nonlinearities associated to initial levels of debt and taxation might play an important role.

Date: 2016-06-22
New Economics Papers: this item is included in nep-lam and nep-pbe
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:fgv:eesptd:423

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