NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Armando Miano

Department of Economics
Harvard University
Littauer Center
Cambridge, MA 02138

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NBER Working Papers and Publications

November 2016Is it the "How" or the "When" that Matters in Fiscal Adjustments?
with Alberto Alesina, Gualtiero Azzalini, Carlo Favero, Francesco Giavazzi: w22863
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.
 
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