Skip to content!

February 15, 2017

Seminar

Is it the "How" or the "When" that Matters in Fiscal Adjustments?

Date

February 15, 2017

Location

Gustav-Schmoller-Raum
DIW Berlin im Quartier 110
Room 3.3.002A
Mohrenstraße 58
10117 Berlin

Speaker

Carlo Favero, Bocconi University

Using data from 16 OECD countries from 1981 to 2014 we find that the composition of fiscal adjustments is much more important than the state of the cycle in determining their e¤ects on output. Adjustments based upon spending cuts are much less costly than those based upon tax increases regardless of whether they start in a recession or not. Our results appear not to be systematically explained by di¤erent reactions of monetary policy. However, when the domestic central bank can set interest rates - that is outside of a currency union - it appears to be able to dampen the recessionary e¤ects of tax-based consolidations implemented during a recession. This finding could help understand the recessionary e¤ects of European "austerity", which was mostly tax based and implemented within a currency union.

Joint work with Alberto Alesina, Gualtiero Azzalini, Francesco Giavazzi and Armando Miano.

Contact

keyboard_arrow_up