Fiscal Consolidation: Part 5. What Factors Determine the Success of Consolidation Efforts?

Margit Molnar

No 936, OECD Economics Department Working Papers from OECD Publishing

Abstract: The global economic and financial crisis exacerbated the need for fiscal consolidation in many OECD countries. Drawing lessons from past episodes of fiscal consolidation, this paper investigates the economic environments, political settings and policy measures conducive to fiscal consolidation and debt stabilisation using probit, duration, truncated regression and bivariate Heckman selection methods. The empirical analysis builds on the earlier literature and extends it to include new aspects that may be of importance for consolidating governments. The empirical analysis confirms previous findings that the presence of fiscal rules – expenditure or budget balance rules – is associated with a greater probability of stabilising debt. Crucial in determining the causal link behind the association, the results also reveal an independent role for such rules over and above the impact of preferences for fiscal prudence. Also, while the analysis confirms that spending-driven adjustments vis-à-vis revenue-driven ones are more likely to stabilise debt, it also reveals that large consolidations need multiple instruments for consolidation to succeed. Sub-national governments, in particular state-level governments can contribute to the success of central government consolidation, if they co-operate. To ensure that state-level governments do co-operate, having the right regulatory framework with the extension of fiscal rules to sub-central government levels is important.

Consolidation budgétaire: Partie 5. Quels sont les facteurs qui conditionnent la réussite des efforts d'assainissement budgétaire ? La crise economique et financiere mondiale a exacerbe l.imperatif d.assainir les finances publiques dans de nombreux pays de l.OCDE. Tirant les enseignements des episodes passes de reequilibrage budgetaire, ce document analyse les facteurs economiques, politiques et strategiques favorables a l.assainissement des finances publiques et a la stabilisation de la dette en utilisant la methode des probits, les modeles de duree, de regression tronquee et de selection en deux etapes de Heckman. L.analyse empirique s.inspire de travaux anterieurs qu.elle enrichit en integrant d.autres aspects qui peuvent etre importants pour les autorites qui optent pour une trajectoire d.assainissement budgetaire. Cette analyse empirique confirme les resultats anterieurs qui montraient que l.existence de regles budgetaires . regles de depenses ou d.equilibre budgetaire . est associee a une plus forte probabilite de stabilisation de la dette. Essentiels pour determiner le lien de causalite qui sous-tend cette association, les resultats revelent par ailleurs que ces regles jouent un role independant au-dela des effets d.une politique axee sur la prudence budgetaire. En outre, l.analyse confirme que les mesures de restriction des depenses sont plus susceptibles de stabiliser la dette que celles fondees sur l.augmentation des recettes, mais elle revele egalement que, pour reussir, les reequilibrages de grande ampleur doivent s.appuyer sur de multiple instruments. Les autorites infranationales, et notamment les autorites regionales ou des Etats, peuvent contribuer au succes des efforts deployes par l.administration centrale en cooperant. Pour garantir cette cooperation, il est important de disposer d.un cadre reglementaire adequat qui applique les regles budgetaires aux autorites infranationales.

Keywords: consolidation budgétaire; dépenses publiques; fiscal consolidation; fiscal federalism; fiscal rules; fédéralisme budgétaire; government spending; règles budgétaires; taxation; taxation (search for similar items in EconPapers)
JEL-codes: E62 H2 H5 H6 H7 (search for similar items in EconPapers)
Date: 2012-01-10
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (41)

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