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Fiscal consolidation after the Great Recession: the role of composition

Iván Kataryniuk and Javier Vallés
Authors registered in the RePEc Author Service: Javier Valles

Oxford Economic Papers, 2018, vol. 70, issue 2, 563-585

Abstract: We have examined the fiscal consolidation episodes in a group of OECD countries from 2009 to 2014. The range of the estimated short-term fiscal multiplier runs from 1.2 to 2.0, larger than those obtained in more ‘normal times’, implying that the contractionary effect has been larger in depressed environments. Nevertheless, we also found that revenue measures have a higher and more persistent real impact than expenditure measures, which is more consistent with the influence of current consolidations on the expectations about the future path of fiscal policies (the expectations channel). This result suggests that expenditure cuts are less harmful for the economy than tax hikes.

JEL-codes: E12 E62 E63 H12 (search for similar items in EconPapers)
Date: 2018
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Working Paper: Fiscal consolidation after the Great Recession:the role of composition (2015) Downloads
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