Fiscal Adjustments: Determinants and Macroeconomic Consequences

By Alexander Plekhanov, Manmohan S. Kumar, Daniel Leigh

July 1, 2007

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Alexander Plekhanov, Manmohan S. Kumar, and Daniel Leigh. Fiscal Adjustments: Determinants and Macroeconomic Consequences, (USA: International Monetary Fund, 2007) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper analyzes the determinants of success of recent fiscal consolidations in the OECD countries as well as the short-run and long-run effects of fiscal adjustments on economic activity by looking at fourteen case studies, panel data for OECD countries, and the results of simulations using a non-Ricardian multi-country dynamic general equilibrium model. The study finds that while fiscal consolidations tend to have short-run contractionary effects, they can be expansionary in the long run, provided that they do not rely excessively on cuts in productive government expenditure. They can also create positive spillover effects for the rest of the world.

Subject: Expenditure, Fiscal consolidation, Fiscal policy, Public debt, Revenue administration

Keywords: Approval rating, Coalition government, Country, Fiscal adjustment, Fiscal consolidation, Global, Government, Government action, Government debt, Government participation, Government purchase, Government purchases of goods and service, Government saving, Government transfer, Minority government, Non-Ricardian model, OECD country experience, Open economy, Wage bill, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2007/178
Stock No:

WPIEA2007178
ISBN:

9781451867428
ISSN:

1018-5941

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