Fiscal Stabilizations: When Do They Work and Why
Author
Published Version
https://doi.org/10.1016/j.euroecorev.2003.09.010Metadata
Show full item recordCitation
Ardagna, Silvia. 2004. Fiscal stabilizations: when do they work and why. European Economic Review 48(5): 1047-1074.Abstract
This paper studies the determinants and channels through which fiscal contractions influence the dynamics of the debt-to-GDP ratio and GDP growth. Using data from a panel of OECD countries, the paper shows that the success of fiscal adjustments in decreasing the debt-to-GDP ratio depends on the size of the fiscal contraction and less on its composition. The rate of growth of output matters too, but higher GDP growth does not drive the success of a fiscal stabilization. In contrast, whether a fiscal adjustment is expansionary depends largely on the composition of the fiscal maneuvre. In particular, stabilizations implemented by cutting public spending lead to higher GDP growth rates. The effects of the composition on growth work mostly through the labor market rather than through agents’ expectations of future fiscal policy. Finally, the evidence suggests that successful and expansionary fiscal contractions are not the result of accompanying expansionary monetary policy or exchange rate devaluations.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#LAACitable link to this page
http://nrs.harvard.edu/urn-3:HUL.InstRepos:2580047
Collections
- FAS Scholarly Articles [18256]
Contact administrator regarding this item (to report mistakes or request changes)