Journal Article

Fiscal consolidation after the Great Recession: the role of composition

Iván Kataryniuk and Javier Vallés

in Oxford Economic Papers

Volume 70, issue 2, pages 563-585
Published in print April 2018 | ISSN: 0030-7653
Published online July 2017 | e-ISSN: 1464-3812 | DOI: https://dx.doi.org/10.1093/oep/gpx032
Fiscal consolidation after the Great Recession: the role of composition

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  • General Aggregative Models
  • Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
  • Public Economics

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Abstract

We have examined the fiscal consolidation episodes in a group of OECD countries from 2009 to 2014. The range of the estimated short-term fiscal multiplier runs from 1.2 to 2.0, larger than those obtained in more ‘normal times’, implying that the contractionary effect has been larger in depressed environments. Nevertheless, we also found that revenue measures have a higher and more persistent real impact than expenditure measures, which is more consistent with the influence of current consolidations on the expectations about the future path of fiscal policies (the expectations channel). This result suggests that expenditure cuts are less harmful for the economy than tax hikes.

Keywords: E12; E62; E63; H12

Journal Article.  9014 words.  Illustrated.

Subjects: General Aggregative Models ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook ; Public Economics

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