The long-run effect of fiscal consolidation on economic growth: Evidence from quantitative case studies
We contribute to the literature on the long-run effect of fiscal consolidation on economic growth by applying a novel method for quantitative case studies. Relying on a qualitative (narrative) definition of fiscal consolidations based on an examination of historical policy documents and using the synthetic control method (SCM), we investigate the evolution of post-consolidation trajectories of economic growth in six case studies of OECD countries. In contrast to recent studies that reject the hypothesis of non-Keynesian effects, our results do not offer clear-cut evidence on the long-run effect of fiscal consolidation on economic growth. Half of the case studies point to a positive effect with the other half indicating a negative effect. We further do not find a specific effect of the strength of the fiscal adjustment and the type of consolidation, i.e., whether the consolidation is rather based on expenditure cuts or revenue increases.
Year of publication: |
2016
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Authors: | Kleis, Mischa ; Moessinger, Marc-Daniel |
Publisher: |
Mannheim : Zentrum für Europäische Wirtschaftsforschung (ZEW) |
Subject: | economic growth | fiscal adjustment | fiscal consolidation | synthetic control method |
Saved in:
freely available
Series: | ZEW Discussion Papers ; 16-047 |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Working Paper |
Language: | English |
Other identifiers: | 87585687X [GVK] hdl:10419/148650 [Handle] RePEc:zbw:zewdip:16047 [RePEc] |
Classification: | O40 - Economic Growth and Aggregate Productivity. General ; E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation ; H60 - National Budget, Deficit, and Debt. General |
Source: |
Persistent link: https://www.econbiz.de/10011577353