Attinasi Grazia, Maria, Metelli, Luca, (2016), “Is fiscal consolidation self-defeating? A Panel-VAR analysis for the Euro area countries”, European Central Bank Working Paper, No. 1883, February
This paper studies the effects of fiscal consolidation on the debt-to-GDP ratio of 11 Euro area countries. Using a quarterly fiscal Panel VAR allows us to trace out the dynamics of the debt-to-GDP ratio following a fiscal shock and to disentangle the main channels through which fiscal consolidation affects the debt ratio. We define a fiscal consolidation episode as self-defeating if the debt-to-GDP ratio does not decrease compared to the pre-shock level. Our main finding is that when consolidation is implemented via a cut in government primary spending, the debt ratio, after an initial increase, falls to below its pre-shock level.
Relevant Posts
- Lama, Ruy, Guzman Medina, Juan Pablo, (2015), “Fiscal Consolidation During Times of High Unemployment: The Role of Productivity Gains and Wage Restraint”, IMF Papers, 10 December
- Rannenberg, Ansgar, Schoder, Christian, Strasky, Jan, (2015), “The macroeconomic effects of the Eurozone’s fiscal consolidation”, Voxeu, 11 Νovember