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Can successful fiscal adjustments only be achieved by spending cuts?

Rasmus Wiese, Richard Jong-A-Pin () and Jakob de Haan ()

European Journal of Political Economy, 2018, vol. 54, issue C, 145-166

Abstract: We re-examine the conventional view that to be successful, fiscal adjustments should rely on spending cuts and not on tax increases. We apply the Bai-Perron structural break filter to identify fiscal adjustments and their successfulness in 20 OECD countries. Our results suggest that the composition of fiscal adjustments is not related to their success. Furthermore, we find that political-economy variables considered are not robustly related to successful fiscal adjustments with one exception: the probability of a successful fiscal adjustment increases if left-wing governments rely on spending cuts and right-wing governments rely on tax increases.

Keywords: Fiscal adjustments; Fiscal consolidation; Deficit reduction; Fiscal policy reforms; Taxes versus spending; Taxation; Government expenditure (search for similar items in EconPapers)
JEL-codes: H20 H30 H50 H62 (search for similar items in EconPapers)
Date: 2018
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European Journal of Political Economy is currently edited by J. De Haan, A. L. Hillman and H. W. Ursprung

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