The Output Effect of Fiscal Consolidations

Alberto Alesina, Carlo Favero () and Francesco Giavazzi ()

No 18336, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The present paper argues that the correct experiment to evaluate the effects of a fiscal adjustment is the simulation of fiscal plans rather than of individual fiscal shocks. The simulation of the fiscal plans adopted by 16 OECD countries over a 30-year period supports the hypothesis that the effects of consolidations depend on their design. Fiscal adjustments based upon spending cuts are much less costly, in terms of output losses, than tax-based ones. Fiscal adjustments have especially low output costs when they consist of permanent rather than stop and go. The difference cannot be explained by accompanying policies, including monetary policy, and appears to be mainly due to the different response of business confidence and private investment.

JEL-codes: E62 H60 (search for similar items in EconPapers)
Date: 2012-08
New Economics Papers: this item is included in nep-mac
Note: IFM ME
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Citations: View citations in EconPapers (96)

Published as Alberto Alesina & Carlo Favero & Francesco Giavazzi, 2015. "The output effect of fiscal consolidation plans," Journal of International Economics, vol 96, pages S19-S42.

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Related works:
Working Paper: The output effect of fiscal consolidations (2013)
Working Paper: The output effect of fiscal consolidations (2012)
Working Paper: The output effect of fiscal consolidations (2012)
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