Fiscal consolidation strategy

Cogan, John F.; Taylor, John B.; Wieland, Volker; Wolters, Maik H.

doi:10.1016/j.jedc.2012.10.004

Cited by 61 publications

(41 citation statements)

References 21 publications

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“…In both cases, there is an improvement in net exports, but the effects on domestic and external demand are quite 42 different. More generally, in the current circumstances in which many European countries should reduce their levels of public deficit and debt, similar to Cogan's et al (2012) proposal, our results show that fiscal consolidations should be accompanied by changes in the tax mix in order to reduce distortions on saving, employment, investment and capital accumulation, with beneficial effects on economic growth and welfare. appendix: The model…”

Section: Discussionsupporting

confidence: 65%

Fiscal Devaluations in EMU

Mares¹,

Vilariño²

2013

HPE-RPE

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SummaryWe use a small open economy general equilibrium model to analyse the effects of a fiscal devaluation in an EMU country. The model has been calibrated for the Spanish economy, which is a good example of the advantages of a change in the tax mix given that its tax system shows a positive bias in the ratio of social security contributions over consumption taxes. The preliminary empirical evidence for European countries shows that this bias was negatively correlated with the current account balance in the expansionary years leading up to the 2009 crisis, a period when many EMU members accumulated large external imbalances. Our simulation results point to significant positive effects of a fiscal devaluation on GDP and employment similar to the ones that could be obtained with an exchange rate devaluation. However, although the effects in terms of GDP and employment are similar, the composition effects of fiscal and nominal devaluations are not alike. In both cases, there is an improvement in net exports, but the effects on domestic and external demand are quite different.

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Section: Discussionsupporting

confidence: 65%

Fiscal Devaluations in EMU

Mares¹,

Vilariño²

2013

HPE-RPE

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“…Gradual consolidation packages may allow the private sector to adjust more smoothly to government spending cuts without suffering any negative disruptions (see Cogan et al 2013). Moreover, ''a steady pace of adjustment'' is, in general, less harmful for the recovery than a frontloading approach (Blanchard and Cottarelli 2010) and a sustained improvement in government fiscal balances is likely to crowd-in private domestic investment and net foreign assets in the long run (Anderson et al 2014).…”

Section: Resultsmentioning

confidence: 99%

Decentralization and the duration of fiscal consolidation: shifting the burden across layers of government

2017

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This paper analyzes the relationship between fiscal decentralization, the duration of fiscal consolidation episodes, and their success for 17 OECD countries between 1978 and 2009. The consolidation of the general government budget appears to be of longer duration when expenditure decisions are more decentralized. We also find that transfers from higher levels of government are cut during consolidation episodes, suggesting that central governments shift the burden of consolidation towards lower tiers of government. This is especially true when the latter have little legal autonomy to raise tax revenues and have little influence over executive decisions taken at the central level. We document that this increases local governments' public debt/GDP ratios. In terms of the success of consolidation episodes, countries with greater degrees of decentralization appear to make smaller improvements in their primary balance when consolidating.

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“…However, here we study debt consolidation within a currency union, while that paper compares a currency union to ‡exible exchange rates and a …scal union. 7 See also Forni et al (2010), Cogan et al (2013), Erceg and Lindé (2013) and many others. 8 Instead of using the device of a …nancial intermediary or bank, we could just assume transaction costs incurred upon borrowers (see e.g.…”

Section: Informal Description Of the Model And Discussion Of Key Assumentioning

confidence: 99%

Fiscal consolidation and its cross-country effects

Philippopoulos

Varthalitis

Vassilatos

2017

Journal of Economic Dynamics and Control

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We build a new Keynesian DSGE model consisting of two heterogeneous countries participating in a monetary union. We study how public debt consolidation in a country with high debt (like Italy) affects welfare in a country with solid public finances (like Germany). Our results show that debt consolidation in the high-debt country benefits the country with solid public finances over all time horizons. By constrast, in Italy, namely the country that takes the consolidation measures, such a policy is productive only in the medium and long term. Thus, although there is a conflict of national interests in shorter horizons, there is a common interest in the medium and long term. All this is with optimized feedback policy rules. By contrast, debt consolidation is welfare inferior to non-consolidation for both countries and all the time, if it is implemented in an ad hoc way, like an increase in income taxes. Therefore, the policy mix is important. Terms of use: Documents inJEL-Codes: E600, F300, H600.

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Fiscal consolidation strategy

Cited by 61 publications

References 21 publications

Fiscal Devaluations in EMU

Fiscal Devaluations in EMU

Decentralization and the duration of fiscal consolidation: shifting the burden across layers of government

Fiscal consolidation and its cross-country effects

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