Article

Public Choice

, Volume 134, Issue 3, pp 147-161

First online:

What makes fiscal consolidations last? A survival analysis of budget cuts in Europe (1960–2004)

  • Reyes Maroto IlleraAffiliated withAnalistas Financieros Internacionales (AFI)Universidad Carlos III de Madrid
  • , Carlos Mulas-GranadosAffiliated withDepartamento de Economía Aplicada-II, Universidad Complutense de Madrid Email author 

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Abstract

This article examines the political and economic determinants of the relative duration of fiscal consolidations in Europe. The study focuses on the fifteen Member States that formed the EU between 1960 and 2004, and applies survival analysis techniques to their fiscal data. We find evidence that the probability of ending a period of fiscal consolidation depends on the debt level, the magnitude of the adjustment, the relative contribution of spending cuts, and the degree of cabinet fragmentation. Most importantly we also find that under a stricter definition of fiscal consolidation, political variables, such as coalition size and election year, gain importance with respect to economic variables as predictors of the probability of ending an episode of fiscal consolidation. This relative importance of political variables weakened in the run-up to EMU, probably because countries had to consolidate irrespective of their political constraints.

Keywords

Public finance Duration analysis Fiscal consolidation Fiscal adjustment

JEL

C41 H30