Cross-Border Effects of Fiscal Consolidations: Estimates Based on Narrative Records

31 Pages Posted: 10 Jul 2013

See all articles by Shafik Hebous

Shafik Hebous

International Monetary Fund

Tom Zimmermann

QuantCo, Inc.; University of Cologne

Date Written: June 30, 2013


We estimate cross-border spillover effects of fiscal consolidation episodes on output, bilateral trade flows, interest rate, and the exchange rate, employing the new IMF action-based fiscal consolidation data. Results indicate a negative effect of foreign fiscal consolidation policies on domestic output. Regarding the transmission mechanism, our results suggest that fiscal consolidations in foreign economies work their way into the domestic economy by negatively affecting exports. We do not find evidence for an interest rate channel. Trade effects are particularly pronounced for some European countries and are insignificant for others, such as the US and Canada. This is not due to the common currency or to differential specialization in trade.

Keywords: fiscal consolidation, cross-border fiscal policy effects, fiscal adjustment, fiscal spillover

JEL Classification: E620, F410, F420, F150, H500, H600

Suggested Citation

Hebous, Shafik and Zimmermann, Tom, Cross-Border Effects of Fiscal Consolidations: Estimates Based on Narrative Records (June 30, 2013). CESifo Working Paper Series No. 4311. Available at SSRN:

Shafik Hebous (Contact Author)

International Monetary Fund ( email )

Washington, DC
United States

Tom Zimmermann

QuantCo, Inc. ( email )

University of Cologne ( email )

Cologne, 50923

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