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Does fiscal consolidation hurt economic growth? Empirical evidence from Spanish regions

Santiago Lago Peñas, Alberto Vaquero-Garcia, Patricio Sánchez-Fernández () and Beatriz López-Bermúdez
Authors registered in the RePEc Author Service: Santiago Lago-Peñas () and Alberto Vaquero García ()

Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), 2019, vol. 13, No 2019-42, 19 pages

Abstract: This article brings empirical evidence on the effect of fiscal consolidation in decentralized countries. The focus on Spain is justified by three reasons. First, it is one of the OECD countries most affected by the Great recession in terms of both GDP and public deficit. Second, Spain is one of the most decentralized countries in the world. Third, compliance with fiscal consolidation targets has been very diverse across regions. Using both time series econometrics and the Synthetic Control Method approach (SCM), we show that compliance with fiscal targets at the regional level has not involved lower GDP growth rates in the short-run. Openness and economic integration of regional economies involve that fiscal multipliers tend to fade. Hence, while a fiscal stimulus would not work on this scale, the opposite is also true: the potentially negative demand effects of a stronger regional fiscal consolidation strategy would be exported to other regions.

Keywords: fiscal consolidation; regional economic growth; Great recession (search for similar items in EconPapers)
JEL-codes: H62 H74 R11 (search for similar items in EconPapers)
Date: 2019
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http://dx.doi.org/10.5018/economics-ejournal.ja.2019-42
https://www.econstor.eu/bitstream/10419/204781/1/1679281356.pdf (application/pdf)

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