The (non-)Keynesian effects of fiscal austerity: New evidence from a large sample

Afonso, António; Alves, José; Jalles, João Tovar

doi:10.1016/j.ecosys.2022.100981

Cited by 13 publications

(5 citation statements)

References 58 publications

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“…Moreover, they noted that in fiscal consolidation policies, expenditure cuts are a better policy option than tax increases, which agrees with the popular opinion in this field of research. Afonso et al (2022a) investigated the non-Keynesian effects of fiscal austerity using different definition approaches from Alesina et al (1998), Giavazzi and Pagano (1995), and Afonso and Jalles (2013). It was found that there are 122 episodes.…”

Section: Threshold Of Fiscal Consolidationmentioning

confidence: 99%

Threshold of the CAPB That Can Be Attributed to Fiscal Consolidation Episodes in South Africa

Buthelezi

Nyatanga

2023

Economies

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This paper investigates the threshold of the cyclical adjusted primary balance (CAPB) that can be attributed to fiscal consolidation in South Africa. The CAPB framework is used in the threshold autoregressive regime (TAR) from 1979 to 2022. The contribution of the paper is the estimation of the CAPB in the context of South Africa to find fiscal consolidation episodes. Moreover, we identify the threshold of CAPB that can be attributed to fiscal consolidation, which the available literature is silent on. The TAR, first-order derivative and dummy variables are employed to find thresholds that can be attributed to fiscal consolidation episodes. By doing so, we provide valuable insights into the underlying dynamics of fiscal consolidation in the country, which can help policymakers develop more effective strategies for managing fiscal consolidation episodes. We estimated the success of fiscal consolidation on government debt in South Africa. There is a threshold of −1.28168%, 1.9182%, and 1.9270% for the CAPB of total government revenue increase, government expenditure cut, and the CAPB as a sum of both revenue and expenditure, respectively. These thresholds are different from the threshold of 1.5% advocated in the literature. It is recommended that a country-based threshold be used to find fiscal consolidation episodes. No or less fiscal consolidation is needed, as it results in less chance of reduction in government debt. Fiscal authorities must establish and execute a strategy for managing domestic government debt to avoid increasing its risk.

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Section: Threshold Of Fiscal Consolidationmentioning

confidence: 99%

Threshold of the CAPB That Can Be Attributed to Fiscal Consolidation Episodes in South Africa

Buthelezi

Nyatanga

2023

Economies

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“…Moreover, ΔCAPB might reflect an intentional fiscal policy change driven by economic conditions, which could be anticipated by economic agents that know the policy maker's fiscal policy reaction function. In addition, measurement issues become relevant, and, particularly, whether the potential output used in the calculation of CAPB is constructed based on the production function approach or on purely statistical procedures such as the Hodrick-Prescott filter (see e.g., Afonso et al 2022).…”

Section: Introductionmentioning

confidence: 99%

“…In this context, Yang et al (2015) proposed a new definition of CAPB that takes account of fluctuations in asset prices and reflects idiosyncratic features of fiscal policy in individual countries and showed that once this new definition is used fiscal adjustments always have contractionary effects on economic activity in the short term. Afonso et al(2022) using data from 1970 to 2018, for 37 advanced economies and 137 developing economies and employing three alternative measures of the cyclically adjusted primary balance to determine adjustment episodes show that (i) tax increases have a positive effect on private consumption in the presence of fiscal consolidation, (ii) fiscal contractions create a crowding-in effect on private investment in particular in advanced economies, (iii) expansionary fiscal consolidations occur in particular in highly indebted advanced economies after an increase in taxes. However, they also report that an increase in general government final consumption expenditures have a positive (Keynesian) effect on real per capita private consumption.…”

Section: Introductionmentioning

confidence: 99%

“…A positive value of ΔCAPB implies that, after having stripped the effect of cyclical conditions, the fiscal policy maker engages in contractionary fiscal policy i.e., fiscal consolidation. Moreover, as correctly pointed out by Afonso et al (2022) the publicly available dataset of narrative fiscal consolidation episodes covers only 16 advanced economies and ends in 2014, which makes it outdated.…”

Section: Introductionmentioning

confidence: 99%

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Τhe short run effects of fiscal adjustment in OECD countries

Georgantas¹,

Kasselaki²,

Tagkalakis³

2022

Working Paper

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This paper investigates the short-run effects of fiscal consolidation on various macroeconomic aggregates in a group of 24 OECD economies from 1990 to 2019.The empirical findings suggest that an unanticipated fiscal consolidation shock is contractionary. The effects are more pronounced in recessions, in high debt countries, in closed economies and when monetary conditions are tight. Consequently, in these cases, the decline of the public debt ratio is more subdued. Spending-based adjustments that are implemented in recessions, in periods with tight monetary conditions and when the debt ratio is above 80% are self-defeating. Fiscal consolidations that are initiated in expansions, in cases of low debt ratios, when monetary conditions are loose and in open economies can be expansionary and lead to a more pronounced decline in the debt ratio. This is particularly true for spending-based adjustments that are initiated in expansions and in periods with loose monetary conditions. These findings are particularly relevant in the current adverse macroeconomic environment as they can help in the design of an effective fiscal consolidation programme.

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“… 3. Episodes of non-Keynesian effects of fiscal policy have been documented in a number of countries. For a recent survey paper on such effects see Afonso, Alves, and Jalles (2022).…”

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confidence: 99%

On the Ricardian Equivalence Theorem in the Presence of Banks and a Reserve Requirement

Batina,

Ihori

2023

Public Finance Review

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We study the Ricardian Equivalence Theorem in the presence of a reserve requirement. Banks pay depositors the deposit rate and receive the borrowing rate on loans. Equivalence fails because the reserve requirement drives a wedge between the deposit and borrowing rates implying that government faces a different intertemporal tradeoff than savers. A tax cut financed by an increase in government debt causes an increase in savings but only increases the supply of loanable funds by a fraction because of the reserve requirement. This causes interest rates to rise and consumption to fall. We also show that if the central bank pays interest on reserves at the borrowing rate, the various rates are equal, however, equivalence still fails. The reason is that future taxes to pay down the debt must be higher for the central bank to pay interest and consumption will fall in response.

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The (non-)Keynesian effects of fiscal austerity: New evidence from a large sample

Cited by 13 publications

References 58 publications

Threshold of the CAPB That Can Be Attributed to Fiscal Consolidation Episodes in South Africa

Threshold of the CAPB That Can Be Attributed to Fiscal Consolidation Episodes in South Africa

Τhe short run effects of fiscal adjustment in OECD countries

On the Ricardian Equivalence Theorem in the Presence of Banks and a Reserve Requirement

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