An Empirical Analysis of Fiscal Adjustments

By Robert F. Westcott, C. John McDermott

June 1, 1996

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Robert F. Westcott, and C. John McDermott An Empirical Analysis of Fiscal Adjustments, (USA: International Monetary Fund, 1996) accessed December 25, 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

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.

Subject: Expenditure, Fiscal consolidation, Fiscal policy, Fiscal stance, Fiscal stimulus, Public debt

Keywords: Adjusted expenditure, Business cycle, Characteristics of fiscal consolidation, Consolidation experience, Consumption puzzle, Contractionary monetary policy, Debt to GDP, Expenditure cut, Expenditure measure, Expenditure side, Fiscal consolidation, Fiscal consolidation need, Fiscal stance, Fiscal stimulus, GDP, Global, Industrial country GDP growth, Interest rate movement, Interest rate premium, Investment expenditure cut, Present discounted value, Ratio of debt, Spending cut, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/059
Stock No:

WPIEA0591996
ISBN:

9781451965957
ISSN:

1018-5941

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