DOI: https://doi.org/10.52903/wp2022308
ΤHE SHORT-RUN EFFECTS OF FISCAL ADJUSTMENT IN OECD COUNTRIES
Georgios Georgantas
University of Patras
Maria Kasselaki
Bank of Greece
Athanasios Tagkalakis
Bank of Greece, University of Patras and
Hellenic Parliamentary Budget Office
Abstract
This paper investigates the short-run effects of fiscal adjustment shocks on macroeconomic aggregates in a group of 24 OECD economies from 1990 to 2019. The analysis controls for recession and expansions, high and low public debt ratio, tight and loose monetary conditions, and trade openness. We find no evidence of expansionary fiscal consolidations or non-Keynesian effects. The empirical findings suggest that unanticipated fiscal consolidation shocks lead to lower real GDP, private consumption, investment, and inflation and to higher unemployment rate. The effects are more pronounced in bad economic times, high debt countries, closed economies and when monetary conditions are tight. Consequently, in these cases, the decline of the public debt ratio is more subdued.
JEL-classification: H60, E62, E32
Keywords: Fiscal consolidation, public debt, bad and good times, monetary conditions, openness.
Acknowledgements: We would like to thank Hiona Balfoussia, George Filis and Nicholas Giannakopoulos for their valuable comments. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of Greece and the Hellenic Parliamentary Budget Office. All remaining errors are ours.
Correspondence:
Athanasios Tagkalakis
Economic Analysis and Research Department
Bank of Greece
El. Venizelos 21 str., 10250
Athens, Greece
Tel.:+30- 2103202442
Email: atagkalakis@bankofgreece.gr