Large Changes in Fiscal Policy: Taxes Versus Spending

37 Pages Posted: 9 Nov 2009

See all articles by Alberto F. Alesina

Alberto F. Alesina

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

Silvia Ardagna

National Bureau of Economic Research (NBER); Goldman Sachs - London

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2009

Abstract

We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.

Suggested Citation

Alesina, Alberto F. and Ardagna, Silvia, Large Changes in Fiscal Policy: Taxes Versus Spending (October 1, 2009). Harvard Institute of Economic Research Discussion Paper No. 2180. Available at SSRN: https://ssrn.com/abstract=1502862 or http://dx.doi.org/10.2139/ssrn.1502862

Alberto F. Alesina (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
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Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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Silvia Ardagna

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Goldman Sachs - London ( email )

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