On the output effect of fiscal consolidation plans: a causal analysis

Lorenzo Carbonari, Alessio Farcomeni, Filippo Maurici () and Giovanni Trovato ()
Additional contact information
Filippo Maurici: DEF, Università degli Studi di Roma Tor Vergata, Italy
Giovanni Trovato: DEF and CEIS, Università degli Studi di Roma Tor Vergata, Italy

Working Paper series from Rimini Centre for Economic Analysis

Abstract: Using data from 16 OECD countries over the period 1981-2011, this paper studies how different policy announcements affect economic growth in situations of fiscal consolidation. We focus on government announcements regarding reductions in expenditure and increases in taxation. We use a mediation analysis to uncover the direct and indirect effects elicited by such announcements. We find that during debt consolidation periods, announcements related to consolidation plans have no direct impact on GDP growth. However, spending cuts announcements have substantial negative indirect effects, resulting in overall negative total effects, while tax increases have negligible indirect and overall impacts. Our findings propose a new interpretation of the results of Alesina et al. (2015b): in terms of announcements, once accounting for indirect effects, spending cuts are more harmful to growth than tax hikes.

Keywords: fiscal adjustment; economic growth; causal mechanisms; mediation analysis (search for similar items in EconPapers)
JEL-codes: E62 H60 H63 (search for similar items in EconPapers)
Date: 2023-12
New Economics Papers: this item is included in nep-eur
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://rcea.org/RePEc/pdf/wp23-18.pdf

Related works:
Working Paper: On the Output Effect of Fiscal Consolidation Plans: A Causal Analysis (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:23-18

Access Statistics for this paper

More papers in Working Paper series from Rimini Centre for Economic Analysis Contact information at EDIRC.
Bibliographic data for series maintained by Marco Savioli ().