The Design of Fiscal Adjustments
52 Pages Posted: 24 Sep 2012
Date Written: September 24, 2012
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: Suggested Citation