Experience with Large Fiscal Adjustments

Abstract

CONTENTS ivThis Occasional Paper analyzes the experience of countries that have implemented very sizable fiscal adjustments over the past three decades. It aims to identify key conditions and institutional approaches that have contributed to sustained outcomes and to favorable macroeconomic developments.

External competitiveness and the role of fiscal policy: does fiscal austerity matter?

“…These results are channelled through the nominal exchange rate depreciation that took place in Hungary, Romania and Slovenia during the observed time period. Tsibouris et al [31] based their conclusion that the tax-based fiscal consolidation works only at the initially low level of tax revenues in GDP, but we claim that it is the exchange rate mechanisms that is important. Our last estimation concerns the subsample of five countries that have a fixed exchange rate mechanism.…”

Fiscal Consolidation: Taking Stock of Success Factors, Impact, and Design

“…Backloaded adjustment under PRGT-funded programs allows for some fiscal easing in the first year of the program and provides more time for tax mobilization to finance higher capital spending (IEO, 2021). This approach seems to mark a shift from the one found in earlier programs where the majority of programs were frontloaded (Tsibouris et al, 2006;. However, adjustments are found to remain more front-loaded under GRA-funded programs.…”

“…Evidence for post-WW2 consolidations shows that cumulative improvements in the CAPB were on average about 3-5 percent of GDP and took place over 3-4 years (Escolano, Jaramillo, and Mulas-Granados, 2018), equivalent to about 1 percent of GDP per year, which echoes the findings of IMF (2010a). Larger consolidations in the order of 7-8 percent of GDP (equivalent to 2 percent or more per year) have also occurred in some countries, with the magnitude occasionally up to 5 percent per year during periods of economic crisis (Escolano, Jaramillo, and Mulas-Granados, 2018;Molnár, 2012;and Tsibouris et al, 2006). 23 Some large consolidations are found to last for 4-8 years (Escolano, Jaramillo, and Mulas-Granados, 2018).…”

“…Gradual and back-loaded consolidations tend to stabilize debt more permanently with more contained output losses, especially when retrenchments are large. The literature indicates that around 40-60 percent of consolidations are front-loaded with at least 50 percent of the total adjustment occurring in the first half of the consolidation episode (Tsibouris et al, 2006;). Yet, the advantage of a gradual consolidation, especially when it is large, is that it spreads out output losses over time, making it more politically and socially acceptable and hence giving the overall consolidation plan a higher likelihood of success (Escolano, Jaramillo, and Mulas-Granados, 2018;and Molnár, 2012).…”

Κοινωνική Δικαιοσύνη, Έλλειψη Θεσμών - Πελατειακές Σχέσεις - Διασυνδέσεις Και Προγράμματα Δημοσιονομικής Προσαρμογής

“…Σε διαφορετικές βάσεις οι (Horton et al, 2006) (εφόσον θα υπάρχει χαμηλότερη φορολογία) και θα τονώσει την κατανάλωση. 9 Στα υψηλά επίπεδα χρέους, η καταναλωτική συμπεριφορά θα είναι περισσότερο Ρικαρδιανή.…”