Τhe short-run effects of fiscal adjustment in OECD countries

36 Pages Posted: 8 Mar 2023

See all articles by Georgios Georgantas

Georgios Georgantas

Department of Economics, University of Patras

Maria Kasselaki

Bank of Greece

Athanasios Tagkalakis

Bank of Greece; University of Patras

Date Written: March 8, 2023

Abstract

This paper investigates the short-run effects of fiscal adjustment shocks on macroeconomic aggregates in a group of 24 OECD economies from 1990 to 2019. The analysis controls for recession and expansions, high and low public debt ratio, tight and loose monetary conditions, and trade openness. We find no evidence of expansionary fiscal consolidations or non-Keynesian effects. The empirical findings suggest that unanticipated fiscal consolidation shocks lead to lower real GDP, private consumption, investment, and inflation and to higher unemployment rate. The effects are more pronounced in bad economic times, high debt countries, closed economies and when monetary conditions are tight. Consequently, in these cases, the decline of the public debt ratio is more subdued.

Keywords: Fiscal consolidation, public debt, bad and good times, monetary conditions, openness

JEL Classification: H60, E62,E32

Suggested Citation

Georgantas, Georgios and Kasselaki, Maria and Tagkalakis, Athanasios, Τhe short-run effects of fiscal adjustment in OECD countries (March 8, 2023). Bank of Greece Working Paper No. 308
DOI: https://doi.org/10.52903/wp2022308, Available at SSRN: https://ssrn.com/abstract=4382012 or http://dx.doi.org/10.2139/ssrn.4382012

Georgios Georgantas

Department of Economics, University of Patras

University Campus, Rio
Patras, 26500
Greece

Maria Kasselaki

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

Athanasios Tagkalakis (Contact Author)

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

University of Patras

Patra
Greece

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