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 November 2017
NBER Program(s):International Finance and Macroeconomics

Using data from 16 OECD countries from 1981 to 2014 we study the effects on output of fiscal adjustments as a function of the composition of the adjustment – that is, whether the adjustment is mostly based on spending cuts or on tax hikes – and of the state of the business cycle when the adjustment is implemented. 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 permanent spending cuts are consistently much less costly than those based upon permanent tax increases. Our results are generally 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 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

Published: Alberto Alesina & Gualtiero Azzalini & Carlo Favero & Francesco Giavazzi & Armando Miano, 2018. "Is it the “How” or the “When” that Matters in Fiscal Adjustments?," IMF Economic Review, vol 66(1), pages 144-188.

Users who downloaded this paper also downloaded* these:
Alesina, Barbiero, Favero, Giavazzi, and Paradisi w23385 The Effects of Fiscal Consolidations: Theory and Evidence
Alesina, Barbiero, Favero, Giavazzi, and Paradisi w20827 Austerity in 2009-2013
Reis w23014 Can the Central Bank Alleviate Fiscal Burdens?
Alesina and Passalacqua w21821 The Political Economy of Government Debt
Alesina and Ardagna w18423 The design of fiscal adjustments
 
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