Is it the "How" or the "When" that Matters in Fiscal Adjustments? / Alberto Alesina, Gualtiero Azzalini, Carlo Favero, Francesco Giavazzi, Armando Miano.

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Alesina, Alberto

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TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w22863.Publication details: Cambridge, Mass. National Bureau of Economic Research 2016.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: Using data from 16 OECD countries from 1981 to 2014 we study the effects on output of fiscal adjustments as a function of the composition of the adjustment - that is, whether the adjustment is mostly based on spending cuts or on tax hikes - and of the state of the business cycle when the adjustment is implemented. We find that both the "how" and the "when" matter, but the heterogeneity related to the composition is more robust across different specifications. Adjustments based upon permanent spending cuts are consistently much less costly than those based upon permanent tax increases. Our results are generally not explained by different reactions of monetary policy. However, when the domestic central bank can set interest rates - that is outside of a currency union - it appears to be able to dampen the recessionary effects of consolidations implemented during a recession.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w22863 (Browse shelf(Opens below))	Not For Loan

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November 2016.

Using data from 16 OECD countries from 1981 to 2014 we study the effects on output of fiscal adjustments as a function of the composition of the adjustment - that is, whether the adjustment is mostly based on spending cuts or on tax hikes - and of the state of the business cycle when the adjustment is implemented. We find that both the "how" and the "when" matter, but the heterogeneity related to the composition is more robust across different specifications. Adjustments based upon permanent spending cuts are consistently much less costly than those based upon permanent tax increases. Our results are generally not explained by different reactions of monetary policy. However, when the domestic central bank can set interest rates - that is outside of a currency union - it appears to be able to dampen the recessionary effects of consolidations implemented during a recession.