Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects

Alberto Alesina, Roberto Perotti

NBER Working Paper No. 5730
Issued in August 1996
NBER Program(s):   ME

This ppaer studies how the composition of fiscal adjustments influences their likelihood of success, defined as a long lasting deficit reduction, and their macroeconomic consequences. We find that fiscal adjustments which rely primarily on spending cuts on transfers and the government wage bill have a better chance of being successful and are expansionary. On the contrary fiscal adjustments which rely primarily on tax increases and cuts in public investment tend not to last and are contractionary. We discuss alternate explanations for these findings by studying both a full sample of OECD countries and by focusing on three case studies: Denmark, Ireland and Italy.

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Document Object Identifier (DOI): 10.3386/w5730

Published: Alesina, Alberto and Roberto Perotti. "Fiscal Adjustments In OECD Countries: Composition And Macroeconomic Effects," International Monetary Fund Staff Papers, 1997, v44(2,Jun), 210-248.

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