Advertisement

Public Choice

, Volume 109, Issue 3–4, pp 327–346 | Cite as

Fiscal Consolidations: Quality, Economic Conditions, and Success

  • Jürgen von Hagen
  • Rolf R. Strauch
Article

Abstract

Recent research has demonstrated theimportance of good quality of fiscaladjustments for the success of governmentbudget consolidations. We extend thisapproach to analyze the importance of theeconomic conditions in which fiscalconsolidations are started for theirsuccess. The cyclical positions of thedomestic and international economy, theinitial debt level and the stance of fiscalpolicy in the OECD are all importantdeterminants of the likelihood of fiscalconsolidations. They also affect thegovernment's choice of consolidationstrategy, making them importantdeterminants of the success of fiscalconsolidations. In contrast, the monetarypolicy stance plays only a negligible rolefor fiscal consolidations. We use theanalysis to test for any Maastricht effectson the performance of European governmentsduring the 1990s. Such effects are weak atbest and occurred only during the firsthalf of the decade.

Keywords

Economic Condition International Economy Public Finance Debt Level Fiscal Consolidation 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Alesina, A. and Ardagna, S. (1998). Tales of fiscal contractions. Economic Policy 27: 489-545.Google Scholar
  2. Alesina, A. and Perotti, R. (1995). Fiscal expansions and fiscal adjustments in OECD countries. Economic Policy 21: 205-248.Google Scholar
  3. Alesina, A. and Perotti, R. (1997). Fiscal adjustments in OECD countries: Compositions and macroeconomic effects. IMF Staff Papers 44: 210-248.Google Scholar
  4. Besley, T. and Case, A. (1995). Incumbent behavior: Vote-seeking, tax setting, and yardstick competition. American Economic Review 85: 25-45.Google Scholar
  5. Drazen, A. and Grilli, V. (1993). The benefits of crisis for economic reform. American Economic Review 83.Google Scholar
  6. European Commission (2000). Public finance in EMU 2000. Brussels: European Commission.Google Scholar
  7. Heylen, F. and Everaert, G. (2000). Success and failure of fiscal consolidation in the OECD: A multivariate analysis. Public Choice 105: 103-124.Google Scholar
  8. Hughes-Hallett, A., Strauch, R. and Hagen, J. von (2000). Budgetary consolidation in EMU. Bonn. Mimeo.Google Scholar
  9. Lambertini, L. and Tavares, J. (2000). Exchange rates and fiscal adjustments: Evidence from the OECD and implications for EMU. Mimeo: UC Los Angeles.Google Scholar
  10. McDermott, C.J. and Wescott, R.F. (1996). An empirical analysis of fiscal adjustments. IMF Staff Papers 43 (December), 725-753.Google Scholar
  11. Perotti, R. (1999). Fiscal policy in good times and bad. Quarterly Journal of Economics 114: 1399-1436.Google Scholar
  12. Perotti, R., Strauch, R. and Hagen, J. von (1998). Sustainable public finances. London: CEPR.Google Scholar
  13. Wyplosz, C. (1999). Economic policy coordination in EMU: Strategies and institutions. ZEI Policy Paper B11 1999.Google Scholar

Copyright information

© Kluwer Academic Publishers 2001

Authors and Affiliations

  • Jürgen von Hagen
    • 1
    • 2
    • 3
  • Rolf R. Strauch
    • 4
  1. 1.ZEIUniversity of BonnGermany
  2. 2.Indiana UniversityUSA
  3. 3.USA
  4. 4.ECB, ZEIUniversity of BonnBonn

Personalised recommendations