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

Public Choice volume 134, pages 147–161 (2008)Cite this article

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.

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Authors and Affiliations

  1. Analistas Financieros Internacionales (AFI), Madrid, Spain

    Reyes Maroto Illera

  2. Universidad Carlos III de Madrid, Madrid, Spain

    Reyes Maroto Illera

  3. Departamento de Economía Aplicada-II, Universidad Complutense de Madrid, 28223 Pozuelo de Alarcón, Madrid, Spain

    Carlos Mulas-Granados

Authors
  1. Reyes Maroto Illera
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  2. Carlos Mulas-Granados
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Corresponding author

Correspondence to Carlos Mulas-Granados.

Additional information

This paper was awarded the II Jean Monnet UCM-Uni2 Research Prize in European Economy. This paper was written while Carlos Mulas-Granados was a European Trust Fellow in Applied Economics at Cambridge University.

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Illera, R.M., Mulas-Granados, C. What makes fiscal consolidations last? A survival analysis of budget cuts in Europe (1960–2004). Public Choice 134, 147–161 (2008). https://doi.org/10.1007/s11127-007-9211-8

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  • DOI: https://doi.org/10.1007/s11127-007-9211-8

Keywords

  • Public finance
  • Duration analysis
  • Fiscal consolidation
  • Fiscal adjustment

JEL

  • C41
  • H30