Government Spending Adjustment: The OECD Since the 1990s

in Public Expenditure, edited by Banca D'Italia, pp. 809-826.

22 Pages Posted: 15 Sep 2005 Last revised: 21 May 2014

See all articles by Zvi Hercowitz

Zvi Hercowitz

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER)

Michel Strawczynski

Bank of Israel - Research Department; Hebrew University of Jerusalem - Dept. of Economics

Date Written: September 1, 2005

Abstract

This paper investigates the drastic reduction in public spending in OECD countries during the 1990s. Using a panel data set of 18 countries, we find this adjustment to be a general OECD development, beginning in 1994, and that participation in the Maastricht Treaty or in the Stability and Growth Pact does not introduce additional effects. In the long run, this adjustment is estimated to reduce the ratio of primary government spending to output by about 4 percentage points. There is no evidence of differential adjustment in expansions or recessions. We also find that declines in interest payments on public debt are followed by increases in primary expenditures by about the same amount. The econometric framework makes it possible to compute the long-run ratios of government expenditures to GDP in the 18 OECD countries in the sample.

JEL Classification: H30, H50

Suggested Citation

Hercowitz, Zvi and Strawczynski, Michel, Government Spending Adjustment: The OECD Since the 1990s (September 1, 2005). in Public Expenditure, edited by Banca D'Italia, pp. 809-826., Available at SSRN: https://ssrn.com/abstract=799707 or http://dx.doi.org/10.2139/ssrn.799707

Zvi Hercowitz

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
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+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER)

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Michel Strawczynski (Contact Author)

Bank of Israel - Research Department ( email )

Bank of Israel Street
Jerusalem
Israel
972-2-6552601 (Phone)

Hebrew University of Jerusalem - Dept. of Economics

Mount Scopus
Jerusalem
Israel

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