NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Alberto Alesina, Gualtiero Azzalini, Carlo Favero, Francesco Giavazzi, Armando Miano

NBER Working Paper No. 22863
Issued in November 2016, Revised in May 2017
NBER Program(s):   IFM

Using data from 16 OECD countries from 1981 to 2014 we specify a model that determines the output effect of fiscal adjustments as a function of the composition of the adjustment and the state of the cycle. We find that both the "how" and the "when" matter, but the heterogeneity related to the composition is more robust across different specifications. Adjustments based upon spending cuts are consistently much less costly than those based upon tax increases. Our results are not explained by different 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 effects of tax-based consolidations implemented during a recession.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

A non-technical summary of this paper is available in the January 2017 NBER digest.  You can sign up to receive the NBER Digest by email.

Supplementary materials for this paper:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22863

Users who downloaded this paper also downloaded* these:
Mitaritonna, Orefice, and Peri w22852 Immigrants and Firms' Outcomes: Evidence from France
Uribe w22866 Is The Monetarist Arithmetic Unpleasant?
Mendoza w22868 Macroprudential Policy: Promise and Challenges
Stiglitz w22837 The Theory of Credit and Macro-economic Stability
Glaeser and Millett Steinberg w22860 Transforming Cities: Does Urbanization Promote Democratic Change?
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us