Can successful fiscal adjustments only be achieved by spending cuts?

Rasmus Wiese*, Richard Jong-A-Pin, Jakob de Haan

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

4 Citations (Scopus)

Abstract

We re-examine the conventional view that to be successful, fiscal adjustments should rely on spending cuts and not on tax increases. We apply the Bai-Perron structural break filter to identify fiscal adjustments and their successfulness in 20 OECD countries. Our results suggest that the composition of fiscal adjustments is not related to their success. Furthermore, we find that political-economy variables considered are not robustly related to successful fiscal adjustments with one exception: the probability of a successful fiscal adjustment increases if left-wing goverments rely on spending cuts and right-wing governments rely on tax increases.

Original languageEnglish
Pages (from-to)145-166
Number of pages22
JournalEuropean Journal of Political Economy
Volume54
DOIs
Publication statusPublished - Sep-2018
EventConference on Political Economy of Public Policy - Ariel, Israel
Duration: 10-Sep-201712-Sep-2017

Keywords

  • Fiscal adjustments
  • Fiscal consolidation
  • Deficit reduction
  • Fiscal policy reforms
  • Taxes versus spending
  • Taxation
  • Government expenditure
  • POLITICAL-ECONOMY
  • STRUCTURAL-CHANGE
  • VETO PLAYERS
  • POLICY
  • CONSOLIDATIONS
  • MODELS
  • AUSTERITY
  • COUNTRIES
  • REFORMS
  • DEFICIT

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