Pressure or Prudence? Tales of Market Pressure and Fiscal Adjustment
41 Pages Posted: 8 Aug 2013
Date Written: July 2013
We study whether multiyear fiscal adjustment plans in 17 OECD countries during 1980-2011 have been associated with market pressure. We find that only a third (34 percent) of the consolidations occurred under market pressure, suggesting that market pressure is important but not the main element associated with consolidation plans. Many adjustments under market pressure were also clustered around external shocks, and entailed larger median fiscal adjustments than other multiyear consolidations. In contrast, we find that virtually all multiyear consolidations aimed at reducing budget deficits occurred with initially weak macro-fiscal fundamentals.
Keywords: Fiscal consolidation, OECD, Fiscal policy, Cross country analysis, Economic models, market pressure, fiscal adjustment, fiscal consolidation, macro-fiscal fundamentals, fiscal consolidation, advanced economies, fiscal consolidations, fiscal adjustment, fiscal policy, fiscal adjustments, fiscal consolidation episodes, fiscal rule, discretionary fiscal policy, government spending, public finances, budget deficits, fiscal rules, public debt, fiscal plans, fiscal outcomes, fiscal revenues, primary balance ratio, fiscal stance, fiscal gap, fiscal sustainability, fiscal affairs, budget constraint, budget deficit, fiscal affairs department, fiscal condition, fiscal episode, tax changes, fiscal year
JEL Classification: E62, G12, H60
Suggested Citation: Suggested Citation