Fiscal Adjustments: Determinants and Macroeconomic Consequences

Alexander Plekhanov, Manmohan Kumar and Daniel Leigh

No 2007/178, IMF Working Papers from International Monetary Fund

Abstract: The paper analyzes the determinants of success of recent fiscal consolidations in the OECD countries as well as the short-run and long-run effects of fiscal adjustments on economic activity by looking at fourteen case studies, panel data for OECD countries, and the results of simulations using a non-Ricardian multi-country dynamic general equilibrium model. The study finds that while fiscal consolidations tend to have short-run contractionary effects, they can be expansionary in the long run, provided that they do not rely excessively on cuts in productive government expenditure. They can also create positive spillover effects for the rest of the world.

Keywords: WP; government; country; OECD country experience; government action; coalition government; wage bill; Fiscal consolidation; fiscal adjustment; government debt; non-Ricardian model; government purchase; minority government; open economy; approval rating; government purchases of goods and service; government transfer; government saving; government participation; Global (search for similar items in EconPapers)
Pages: 38
Date: 2007-07-01
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Citations: View citations in EconPapers (36)

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