Does Fairness Matter for the Success of Fiscal Consolidation?

31 Pages Posted: 22 May 2013

See all articles by Georgia Kaplanoglou

Georgia Kaplanoglou

University of Athens - Economics Department

Vassilis T. Rapanos

National and Kapodistrian University of Athens - Department of Economics, Politics and the State

Ioanna Bardakas

Bank of Greece

Multiple version iconThere are 2 versions of this paper

Date Written: April 30, 2013

Abstract

Does it matter for fiscal consolidation programs to be fair in order to be successful? This question has never been empirically addressed despite its profound importance especially since many developed countries have embarked on fiscal consolidation programs, which in many cases have led to sizeable increases in unemployment and poverty, and are met with public dissatisfaction. Using a data set for 29 OECD countries over the period 1971-2009, we argue that fairness matters, namely that improving the targeting of social transfers and their effectiveness in terms of poverty alleviation, higher public expenditure on training and active labor market programs and programs like social housing directed to the poor, even decreasing the VAT rate on necessities, improve the success probabilities of consolidation attempts. Introducing such concerns sheds new light on the prevailing view that the successful fiscal adjustments are those that rely on spending-cuts rather than on tax increases. The results of this paper provide empirical evidence that ameliorating the effects of adjustment, by supporting the weaker parts of society, is crucial for the success of fiscal consolidations and argues that “fair fiscal adjustments” may provide the double dividend of enhancing the probability of success of the adjustment and of promoting social cohesion.

Keywords: fiscal consolidation, success, fairness, expenditure, social transfers

JEL Classification: D63, E62, H23, H53, H50, H62, I38

Suggested Citation

Kaplanoglou, Georgia and Rapanos, Vassilis T. and Bardakas, Ioanna, Does Fairness Matter for the Success of Fiscal Consolidation? (April 30, 2013). Available at SSRN: https://ssrn.com/abstract=2267831 or http://dx.doi.org/10.2139/ssrn.2267831

Georgia Kaplanoglou (Contact Author)

University of Athens - Economics Department ( email )

Athens
Greece
+302103689459 (Phone)

Vassilis T. Rapanos

National and Kapodistrian University of Athens - Department of Economics, Politics and the State ( email )

Athens
Greece

Ioanna Bardakas

Bank of Greece ( email )

21 E. Venizelos Avenue
GR-10250 Athens
Greece

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