An Empirical Analysis of Fiscal Adjustments

Robert Westcott and Christopher McDermott

No 1996/059, IMF Working Papers from International Monetary Fund

Abstract: This study uses the fiscal expansion and consolidation experiences of the industrial countries over the period 1970 to 1995 to examine the interplay between fiscal adjustments and economic performance. A key finding is that fiscal consolidation need not trigger an economic slowdown. Fiscal consolidation that concentrates on the expenditure side, and especially on transfers and government wages, is more likely to succeed in reducing the public debt ratio than tax-based consolidation. Also, the greater the magnitude of the fiscal consolidation, the more likely it is to succeed in reducing the debt ratio.

Keywords: WP; GDP; business cycle; expenditure cut; present discounted value; spending cut; consumption puzzle; expenditure measure; interest rate movement; debt to GDP; ratio of debt; contractionary monetary policy; investment expenditure cut; adjusted expenditure; industrial country GDP growth; Fiscal consolidation; Fiscal stimulus; Fiscal stance; Global; fiscal consolidation need; consolidation experience; characteristics of fiscal consolidation; interest rate premium; expenditure side (search for similar items in EconPapers)
Pages: 26
Date: 1996-06-01
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Citations: View citations in EconPapers (175)

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Journal Article: An Empirical Analysis of Fiscal Adjustments (1996)
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