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The output e ff ect of fi scal consolidation plans
| Content Provider | Semantic Scholar |
|---|---|
| Author | Alesina, Alberto Favero, Carlo Ambrogio Giavazzi, Francesco |
| Copyright Year | 2013 |
| Abstract | We show that the correct experiment to evaluate the effects of a fiscal adjustment is the simulation of a multi year fiscal plan rather than of individual fiscal shocks. Simulation of fiscal plans adopted by 16 OECD countries over a 30-year period supports the hypothesis that the effects of consolidations depend on their design. Fiscal adjustments based upon spending cuts are much less costly, in terms of output losses, than tax-based ones and have especially low output costs when they consist of permanent rather than stop and go changes in taxes and spending. The difference between tax-based and spending-based adjustments appears not to be explained by accompanying policies, including monetary policy. It is mainly due to the different response of business confidence and private investment. ∗Alesina: Harvard University, IGIER-Bocconi, CEPR and NBER. aalesina@harvard.edu. Favero: Deutsche Bank Chair, IGIER-Bocconi, and CEPR. carlo.favero@unibocconi.it. Giavazzi: IGIER-Bocconi, MIT, CEPR and NBER, francesco.giavazzi@unibocconi.it. We thank Silvia Ardagna, Olivier Blanchard, Giancarlo Corsetti, Marco Del Negro, Jeff Frankel, Daniel Leigh, Guido Lorenzoni, Roberto Perotti, Andrea Pescatori, David Romer, Christopher Sims, Guido Tabellini and participants in seminars at ECB, Bank of Italy, Federal Reserve Bank of San Francisco, Federal Reserve Bank of New York, ISoM, LBS, Northwestern, NYU Stern, Bocconi, and the NBER conferences on Sovereign Debt and Financial Crises and The Euro Crisis. Diana Morales, Madina Karamysheva, Omar Barbiero, Armando Miano, Matteo Paradisi and Andrea Passalacqua provided outstanding research assistance. We also thank Antonio Giannino and Francesca Zambrini for careful editing. This paper was initially funded as part of the Growth and Sustainability Policies for Europe project (GRASP #244725) by the European Commission’s 7th Framework Programme. We also gratefully acknowledge research support from the Research Center SAFE, funded by the State of Hessen initiative for research LOEWE. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://scholar.harvard.edu/files/alesina/files/output_effect_fiscal_consolidations_oct_2014.pdf |
| Alternate Webpage(s) | http://www.iae.csic.es/investigatorsMaterial/a1322101157106025.pdf |
| Alternate Webpage(s) | http://didattica.unibocconi.it/mypage/upload/48751_20131010_030430_THEOUTPUTOFFISCALCONSOLIDATIONSOCTOBER2013.PDF |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
