The Design of Fiscal Adjustments

52 Pages Posted: 24 Sep 2012  

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

Date Written: September 24, 2012

Abstract

This paper offers three results. First, in line with the previous literature we confirm that fiscal adjustments based mostly on the spending side are less likely to be reversed. Second, spending based fiscal adjustments have caused smaller recessions than tax-based fiscal adjustments. Finally, certain combinations of policies have made it possible for spending based fiscal adjustments to be associated with growth in the economy even on impact rather than with a recession. Thus, expansionary fiscal adjustments are possible.

Keywords: deficit reduction, policy reforms, taxes versus spending

JEL Classification: E62, H62

Suggested Citation

Alesina, Alberto F. and Ardagna, Silvia, The Design of Fiscal Adjustments (September 24, 2012). Available at SSRN: https://ssrn.com/abstract=2151380 or http://dx.doi.org/10.2139/ssrn.2151380

Alberto F. Alesina (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
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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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133 Fleet Street
London, EC4A 2BB
United Kingdom

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