Fiscal Adjustments: Determinants and Macroeconomic Consequences

40 Pages Posted: 23 Aug 2007

See all articles by Manmohan Kumar

Manmohan Kumar

International Monetary Fund (IMF) - Research Department

Daniel Leigh

International Monetary Fund (IMF)

Alexander Plekhanov

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2007

Abstract

The paper analyzes the determinants of success of recent fiscal consolidations in the OECD countries as well as the short-run and long-run effects of fiscal adjustments on economic activity by looking at fourteen case studies, panel data for OECD countries, and the results of simulations using a non-Ricardian multi-country dynamic general equilibrium model. The study finds that while fiscal consolidations tend to have short-run contractionary effects, they can be expansionary in the long run, provided that they do not rely excessively on cuts in productive government expenditure. They can also create positive spillover effects for the rest of the world.

Keywords: Working Paper, Fiscal policy, Adjustment process, Public debt, Economic models

Suggested Citation

Kumar, Manmohan and Leigh, Daniel and Plekhanov, Alexander, Fiscal Adjustments: Determinants and Macroeconomic Consequences (July 2007). IMF Working Papers, Vol. , pp. 1-38, 2007. Available at SSRN: https://ssrn.com/abstract=1007927

Manmohan Kumar

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7771 (Phone)
202-589-7771 (Fax)

Daniel Leigh

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Alexander Plekhanov

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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