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Fiscal tightening after the crisis. A scenario analysis for Poland

Jan Hagemejer, Tomasz Jedrzejowicz and Zbigniew Zolkiewski
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Tomasz Jedrzejowicz: National Bank of Poland, Economic Institute, http://www.nbp.pl
Zbigniew Zolkiewski: National Bank of Poland, Economic Institute, http://www.nbp.pl

Bank i Kredyt, 2011, vol. 42, issue 3, 33-66

Abstract: Poland has experienced a great deal of worsening of its fiscal situation following the economic slowdown of 2008–2009 caused by the worldwide financial crisis. General government deficit reached around 8% of GDP in 2010 both as a result of lower economic activity but also due to structural loosening that took part in the period immediately preceding the crisis. We attempt to assess which of the two contrasting fiscal consolidation strategies: expenditure-versus revenue-focused may be considered as preferable from the point of view of economic activity. The assessment is carried out using a recursive dynamic computable general equilibrium model. Our results show that, while the tightening has a negative effect on consumption, in the short run, the reaction of private consumption, employment and GDP in the medium run will greatly depend on the flexibility of the labour market and the behavior of private investment. We conclude that the expenditure-focused tightening scheme is consistently superior under all closures to the revenue--oriented scenario.

Keywords: fiscal tightening; computable general equilibrium (search for similar items in EconPapers)
JEL-codes: C68 E62 O52 (search for similar items in EconPapers)
Date: 2011
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