Fiscal Consolidation: Contrasting Strategies & Lessons From International Experiences

Jörg Bibow

Economics Working Paper Archive from Levy Economics Institute

Abstract: This paper analyzes the issues of public finance sustainability and suitability of strategies aimed at fiscal consolidation. Contrasting growth-based versus thrift-based consolidation strategies, it is argued that in the light of theory only the former promises success in large economies. Empirically, this study investigates the experiences with consolidation over the 1990s in the U.S., Japan, and the eurozone while scrutinizing disparities in economic performance and consolidation within Europe. It is argued that experiences of individual European Union (EU) member states may not be applicable to the eurozone as a whole and that the U.S. may provide the only relevant example for guiding policymaking in the EMU. The U.S. example features cooperative macroeconomic policies geared at steering domestic demand growth, with sustainable public finances as a consequence of their success. By contrast, the Maastricht regime features a counterproductive mix of thrift-based consolidation and inflation-obsessed monetary policy--ultimately a recipe for disaster. Reforms should focus on securing cooperation and proper growth orientation in macroeconomic policymaking, with discipline being imposed in a more balanced way on both finance ministers and central bankers.

Date: 2004-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.levyinstitute.org/pubs/wp400.pdf (application/pdf)

Related works:
Working Paper: Fiscal Consolidation Contrasting Strategies & Lessons from International Experience (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lev:wrkpap:wp_400

Access Statistics for this paper

More papers in Economics Working Paper Archive from Levy Economics Institute
Bibliographic data for series maintained by Elizabeth Dunn ( this e-mail address is bad, please contact ).