Fiscal Consolidations: Quality, Economic Conditions, and Success

Juergen von Hagen and Rolf R Strauch

Public Choice, 2001, vol. 109, issue 3-4, 327-46

Abstract: Recent research has demonstrated the importance of good quality of fiscal adjustments for the success of government budget consolidations. We extend this approach to analyze the importance of the economic conditions in which fiscal consolidations are started for their success. The cyclical positions of the domestic and international economy, the initial debt level and the stance of fiscal policy in the OECD are all important determinants of the likelihood of fiscal consolidations. They also affect the government's choice of consolidation strategy, making them important determinants of the success of fiscal consolidations. In contrast, the monetary policy stance plays only a negligible role for fiscal consolidations. We use the analysis to test for any Maastricht effects on the performance of European governments during the 1990s. Such effects are weak at best and occurred only during the first half of the decade. Copyright 2001 by Kluwer Academic Publishers

Date: 2001
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