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Can successful fiscal adjustments only be achieved by spending cuts?

Author

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  • Wiese, Rasmus
  • Jong-A-Pin, Richard
  • de Haan, Jakob

Abstract

We re-examine the conventional view that to be successful, fiscal adjustments should rely on spending cuts and not on tax increases. We apply the Bai-Perron structural break filter to identify fiscal adjustments and their successfulness in 20 OECD countries. Our results suggest that the composition of fiscal adjustments is not related to their success. Furthermore, we find that political-economy variables considered are not robustly related to successful fiscal adjustments with one exception: the probability of a successful fiscal adjustment increases if left-wing governments rely on spending cuts and right-wing governments rely on tax increases.

Suggested Citation

  • Wiese, Rasmus & Jong-A-Pin, Richard & de Haan, Jakob, 2018. "Can successful fiscal adjustments only be achieved by spending cuts?," European Journal of Political Economy, Elsevier, vol. 54(C), pages 145-166.
    • Handle: RePEc:eee:poleco:v:54:y:2018:i:c:p:145-166
    DOI: 10.1016/j.ejpoleco.2018.01.003
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    More about this item

    Keywords

    Fiscal adjustments; Fiscal consolidation; Deficit reduction; Fiscal policy reforms; Taxes versus spending; Taxation; Government expenditure;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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