Duration of Fiscal Consolidations in the European Union

Reyes Maroto Illera and Carlos Mulas-Granados

No 2001-19, Working Papers from FEDEA

Abstract: This paper examines the duration of fiscal consolidations among the fifteen EU Members States using data from the European Commission for the period 1960-2000. Using the duration model approach, we estimate the hazard and survivor functions of our series. Then we discuss what is the duration model that best fits our data, and which are the explanatory variables that best explain the probability of ending a fiscal consolidation period. We deal also with those aspects related to sample heterogeneity and the sensitivity of our results to different possible definitions of fiscal adjustment. We find evidence that the probability of ending a period of fiscal consolidation depends on the debt level, the magnitude of the adjustment, the extent of expenditure cuts, and the degree of cabinet fragmentation. We also find that under a stricter definition of fiscal consolidation, political variables, such as coalition size and election year, gain importance with respect to economic variables as predictors of probability of ending a fiscal consolidation period.

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