What Promotes Fiscal Consolidation: OECD Country Experiences

Posted: 1 Jun 2010

See all articles by Stephanie Guichard

Stephanie Guichard

affiliation not provided to SSRN

Mike Kennedy

affiliation not provided to SSRN

Eckhard Wurzel

OECD

Christophe Andre

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO)

Date Written: May 28, 2007

Abstract

Fiscal consolidation is required in most OECD countries. This is especially so in view of medium and long-term spending pressures on public finances, related, inter alia, to ageing. Based on a dataset covering a large number of OECD fiscal consolidation episodes starting in the late 1970s, the paper presents evidence, both descriptive and econometric, on macroeconomic conditions and policy set-ups that have been effective in triggering and sustaining fiscal consolidation. Main findings include: Large initial deficits and high interest rates have been important in prompting fiscal adjustment and also in boosting the overall size and duration of consolidation. Concerning the quality of fiscal policies, an emphasis on cutting current expenditures has been associated with overall larger consolidation. Fiscal rules with embedded expenditure targets tended to be associated with larger and longer adjustments, pointing to institutional features playing a potentially important role in generating successful consolation efforts. Experience across countries also shows that certain design features such as transparency, flexibility to face shocks and effective enforcement mechanisms seem important for the effectiveness of fiscal rules.

Keywords: Fiscal consolidation, deficit, public debt, government spending, government revenues, fiscal

JEL Classification: H11, H62, H63

Suggested Citation

Guichard, Stephanie and Kennedy, Mike and Wurzel, Eckhard and Andre, Christophe, What Promotes Fiscal Consolidation: OECD Country Experiences (May 28, 2007). Available at SSRN: https://ssrn.com/abstract=1618207

Stephanie Guichard

affiliation not provided to SSRN ( email )

Mike Kennedy

affiliation not provided to SSRN ( email )

Eckhard Wurzel

OECD ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

Christophe Andre (Contact Author)

Organization for Economic Co-Operation and Development (OECD) - Economics Department (ECO) ( email )

2 rue Andre Pascal
Paris Cedex 16, MO 63108
France

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
479
PlumX Metrics