An Empirical Analysis of Fiscal Adjustments

26 Pages Posted: 15 Feb 2006  

C. John McDermott

Reserve Bank of New Zealand

Robert Wescott

International Monetary Fund (IMF) - European Department

Date Written: June 1996

Abstract

This study uses the fiscal expansion and consolidation experiences of the industrial countries over the period 1970 to 1995 to examine the interplay between fiscal adjustments and economic performance. A key finding is that fiscal consolidation need not trigger an economic slowdown. Fiscal consolidation that concentrates on the expenditure side, and especially on transfers and government wages, is more likely to succeed in reducing the public debt ratio than tax-based consolidation. Also, the greater the magnitude of the fiscal consolidation, the more likely it is to succeed in reducing the debt ratio.

JEL Classification: E62, H62

Suggested Citation

McDermott, C. John and Wescott, Robert, An Empirical Analysis of Fiscal Adjustments (June 1996). IMF Working Paper, Vol. , pp. 1-26, 1996. Available at SSRN: https://ssrn.com/abstract=882959

C. John McDermott (Contact Author)

Reserve Bank of New Zealand ( email )

2 The Terrace
P.O. Box 2498
Wellington, 6011
New Zealand

Robert Wescott

International Monetary Fund (IMF) - European Department ( email )

700 19th St. NW
Washington, DC 20431
United States

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