Tales of Fiscal Adjustment

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Tales of Fiscal Adjustment

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Title: Tales of Fiscal Adjustment
Author: Ardagna, Silvia; Alesina, Alberto

Note: Order does not necessarily reflect citation order of authors.

Citation: Alesina, Alberto and Silvia Ardagna. 1998. Tales of Fiscal Adjustment. Economic Policy 13(27): 489-585.
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Abstract: This paper examines the evidence on fiscal adjustments in OECD countries from the early 1960s to today. The results shed light on the recently observed phenomenon of fiscal tightening that produces (non-Keynesian) expansionary effects. One interpretation is that a serious fiscal tightening increases demand Wealth rises when future tax burdens decline, and when interest rates decline credibility is restored and inflation or default risks abate. Both consumption and investment rise. For this effect to produce an expansion, the tightening must be sizeable and occur after a period of stress when the budget is quickly deteriorating and public debt is building up. Another interpretation emphasizes the supply side. Typically, a fiscal consolidation based on tax increases is short-lived. To be long lasting, it must include cuts in public employment, transfers and government wages. lo be politically possible, such a policy must be supported by trade unions. These measures result in more efficient labour markets and boost the supply side. Based both on statistical evidence and on a detailed analysis often cares of major fiscal adjustment, this article provides cautious support to the supply-side view, without denying a more limited role for the demand-side channel. The definitive version is available at www.blackwell-synergy.com
Published Version: http://dx.doi.org/10.1111/1468-0327.00039
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:2579822

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  • FAS Scholarly Articles [7587]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University
 
 

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