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

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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Correspondence to Carlos Mulas-Granados.

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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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Keywords

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

JEL

  • C41
  • H30