Governments and Promised Fiscal Consolidations: Do They Mean What They Say?

By Sanjeev Gupta, João Tovar Jalles, Carlos Mulas-Granados, Michela Schena

February 23, 2017

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Sanjeev Gupta, João Tovar Jalles, Carlos Mulas-Granados, and Michela Schena. Governments and Promised Fiscal Consolidations: Do They Mean What They Say?, (USA: International Monetary Fund, 2017) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper analyses the causes and consequences of fiscal consolidation promise gaps, defined as the distance between planned fiscal adjustments and actual consolidations. Using 74 consolidation episodes derived from the narrative approach in 17 advanced economies during 1978 – 2015, the paper shows that promise gaps were sizeable (about 0.3 percent of GDP per year, or 1.1 percent of GDP during an average fiscal adjustment episode). Both economic and political factors explain the gaps: for example, greater electoral proximity, stronger political cohesion and higher accountability were all associated with smaller promise gaps. Finally, governments which delivered on their fiscal consolidation plans were rewarded by financial markets and not penalized by voters.

Subject: Budget planning and preparation, Fiscal consolidation, Fiscal policy, GDP measurement, National accounts, Output gap, Production, Public financial management (PFM)

Keywords: Accountability, B. measuring Consolidation Promise Gaps, Budget implementation, Budget plan, Budget planning and preparation, Elections, Financial market indicator, Fiscal consolidation, Fractionalization, GDP measurement, Government effectiveness, Government popularity, Market's reaction, Narrative approach, Output gap, Political economy, Promise gap, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/039
Stock No:

WPIEA2017039
ISBN:

9781475581133
ISSN:

1018-5941

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