Total factor productivity (TFP) and fiscal consolidation: how harmful is austerity?
Ioanna Bardaka (),
Ioannis Bournakis () and
Additional contact information
Ioanna Bardaka: Bank of Greece
Georgia Kaplanoglou: University of Athens
No 255, Working Papers from Bank of Greece
Departing from the expansionary austerity literature, this study assesses empirically whether fiscal consolidation propagates changes in the supply side of the economy that can potentially influence total factor productivity. Using a panel dataset of 26 OECD countries over the period 1980-2016 and employing panel vector autoregressive and error correction model specifications, we present evidence of both short-run and long-run negative effects of fiscal consolidation on TFP. The short-run impact is disproportionately more damaging for the TFP of low debt countries, while, contrary to the expansionary austerity thesis, our empirical results would advise against spending-driven fiscal consolidation, since such consolidation undermines capacity due to the importance of government spending in shaping productive capital. Our results have serious policy implications for the implementation and design of fiscal adjustment programmes.
Keywords: total factor productivity; fiscal consolidation; OECD countries; austerity; growth (search for similar items in EconPapers)
JEL-codes: E62 C23 H68 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-eff and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
https://www.bankofgreece.gr/BogEkdoseis/Paper2018255.pdf Full Text (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bog:wpaper:255
Access Statistics for this paper
More papers in Working Papers from Bank of Greece Contact information at EDIRC.
Bibliographic data for series maintained by Christina Tsochatzi ().