Assessing fiscal episodes

Antonio Afonso and Joao Jalles

Economic Modelling, 2014, vol. 37, issue C, 255-270

Abstract: In an OCDE panel, for the period 1970–2010, we assess the effects of fiscal consolidation episodes, with four different definitions. Our results reveal that lower final government consumption increases private consumption in three out of the four approaches, when a fiscal consolidation occurs, and the debt ratio is above the cross-country average. The magnitude of these coefficients is higher for countries with lower debt levels, implying more successful consolidations associated with reduced crowding-out effects. There is some evidence of non-Keynesian effects for both private consumption and private investment, and the effects of social transfers on private investment tend to be negative, both in the short and long run. In a financial crisis, such effects are also more prone to happen. Finally, raising long-term interest rates reduces per capita private investment.

Keywords: Fiscal consolidation; Non-Keynesian effects; Financial crises; Panel data; Endogeneity (search for similar items in EconPapers)
JEL-codes: C23 E21 E62 H5 H62 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Working Paper: Assessing fiscal episodes (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:37:y:2014:i:c:p:255-270

DOI: 10.1016/j.econmod.2013.10.035

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