The 2011-2014 Economic Adjustment Programme for Portugal: A Plausible Counterfactual Scenario

Manuel Correia de Pinho () and Maria Pinho
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Manuel Correia de Pinho: Porto, Portugal

Notas Económicas, 2022, issue 55, 69-99

Abstract: The 2007 global financial crisis triggered a severe sovereign debt crisis in Portugal, which led to the need to comply with an Economic Adjustment Programme (EAP) based on fiscal consolidation, among other pillars. According to our literature review, the economic environ-ment in which the adjustment takes place matters. Also, the composition of the adjustment seems to be relevant to its effectiveness, with expenditure-based plans being less contraction-ary (or even expansionary) than tax-based plans. Our purpose is to understand, through a VAR model, which path the Portuguese economy would have followed without the EAP. Our results suggest that the austerity programme may have been harmful to economic activity in the short run, but in a longer horizon it produced a better outcome than if the EAP had not been implemented. In the absence of the EAP, the tax to GDP ratio would have been below the current ratio, with the inverse happening for the primary public expenditure ratio and for the public debt interest rate. Overall, our results support the likelihood of less disciplined fiscal accounts in the absence of the EAP.

Keywords: adjustment programme; fiscal consolidation; vector autoregressive; counterfactual (search for similar items in EconPapers)
JEL-codes: C32 E62 H30 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:gmf:journl:y:2022:i:55:p:69:99

DOI: 10.14195/2183-203X_55_3

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