Abstract

http://ssrn.com/abstract=2130577
 
 

References (33)



 
 

Citations (1)



 


 



The Output Effect of Fiscal Consolidations


Alberto F. Alesina


Harvard University - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Carlo A. Favero


Bocconi University - Department of Finance; Centre for Economic Policy Research (CEPR)

Francesco Giavazzi


Bocconi University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

August 16, 2012


Abstract:     
This paper studies whether fiscal corrections cause large output losses. We find that it matters crucially how the fiscal correction occurs. Adjustments based upon spending cuts are much less costly in terms of output losses than tax-based ones. Spending-based adjustments have been associated with mild and short-lived recessions, in many cases with no recession at all. Tax-based adjustments have been associated with prolonged and deep recessions. The difference cannot be explained by different monetary policies during the two types of adjustments. Studying the effects of multi-year fiscal plans rather than individual shifts in fiscal variables we make progress on question of anticipated versus unanticipated policy shifts: we find that the correlation between unanticipated and anticipated shifts in taxes and spending is heterogeneous across countries, suggesting that the degree of persistence of fiscal corrections varies. Estimating the effects of fiscal plans, rather than individual fiscal shocks, we obtain much more precise estimates of tax and spending multipliers.

Number of Pages in PDF File: 53

Keywords: fiscal adjustment, output, confidence, investment

JEL Classification: H60, E62

working papers series


Download This Paper

Date posted: August 16, 2012  

Suggested Citation

Alesina, Alberto F. and Favero, Carlo A. and Giavazzi, Francesco, The Output Effect of Fiscal Consolidations (August 16, 2012). Available at SSRN: http://ssrn.com/abstract=2130577 or http://dx.doi.org/10.2139/ssrn.2130577

Contact Information

Alberto F. Alesina (Contact Author)
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-495-8388 (Phone)
617-495-7730 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Carlo A. Favero
Bocconi University - Department of Finance ( email )
Via Roentgen 1
Milano, MI 20136
Italy
HOME PAGE: http://www.igier.unibocconi.it\favero
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Francesco Giavazzi
Bocconi University - Department of Economics ( email )
Via Gobbi 5
Milan, 20136
Italy
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Feedback to SSRN


Paper statistics
Abstract Views: 1,764
Downloads: 416
Download Rank: 32,781
References:  33
Citations:  1

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 0.250 seconds