The effects of fiscal consolidations on the composition of government spending

Moulaye Bamba, Jean-Louis Combes and Alexandru Minea
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Moulaye Bamba: CERDI - Centre d'Études et de Recherches sur le Développement International - UCA [2017-2020] - Université Clermont Auvergne [2017-2020] - CNRS - Centre National de la Recherche Scientifique

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Abstract: In response to increasing debt paths, governments often implement fiscal consolidation programs. This paper studies the impact of these programs on the composition of government spending. System-GMM estimations performed on a sample of 53 developed and emerging countries over 1980-2011 reveal that fiscal consolidations significantly reduce the government investment-to-consumption ratio, i.e. a composition effect. Robust to a wide set of tests, this significantly stronger contraction of government investment with respect to government consumption is at work particularly when debt is high, for spending-based fiscal consolidations, in the low phase of the economic cycle, and following debt and stock market crises. Therefore, in such contexts, fiscal consolidations aimed at short-run stabilization may hurt the economy in the long-run through their detrimental effect on public investment, calling for a reflection upon how they could be re-designed to allow avoiding such undesirable consequences.

Keywords: Fiscal consolidation; Government consumption; Government investment (search for similar items in EconPapers)
Date: 2019-02-21
New Economics Papers: this item is included in nep-mac
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-02043892
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Related works:
Journal Article: The effects of fiscal consolidations on the composition of government spending (2020)
Working Paper: The effects of fiscal consolidations on the composition of government spending (2020)
Working Paper: The effects of fiscal consolidations on the composition of government spending (2019)
Working Paper: The effects of fiscal consolidations on the composition of government spending (2019)
Working Paper: The Effects of Fiscal Consolidations on The Composition of Government Spending (2019)
Working Paper: The Effects of Fiscal Consolidations on The Composition of Government Spending (2019)
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