Governments and Promised Fiscal Consolidations: Do They Mean What They Say?

Sanjeev Gupta, Joao Jalles, Carlos Mulas-Granados and Michela Schena

No 2017/039, IMF Working Papers from International Monetary Fund

Abstract: This paper analyses the causes and consequences of fiscal consolidation promise gaps, defined as the distance between planned fiscal adjustments and actual consolidations. Using 74 consolidation episodes derived from the narrative approach in 17 advanced economies during 1978 – 2015, the paper shows that promise gaps were sizeable (about 0.3 percent of GDP per year, or 1.1 percent of GDP during an average fiscal adjustment episode). Both economic and political factors explain the gaps: for example, greater electoral proximity, stronger political cohesion and higher accountability were all associated with smaller promise gaps. Finally, governments which delivered on their fiscal consolidation plans were rewarded by financial markets and not penalized by voters.

Keywords: WP; promise gap; political economy; fiscal consolidation; budget plan; budget implementation; narrative approach; elections; fractionalization; accountability; government popularity; government effectiveness; financial market indicator; B. measuring Consolidation Promise Gaps; market's reaction; Output gap; Budget planning and preparation; GDP measurement (search for similar items in EconPapers)
Pages: 37
Date: 2017-02-23
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Citations: View citations in EconPapers (17)

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