DP 2019/5 - El-Shagi, M. / von Schweinitz, G.: Fiscal Policy and Fiscal Fragility: Empirical Evidence from the OECD

Makram El-Shagi, Gregor von Schweinitz

CFDS Discussion Paper 2019/5

Abstract

In this paper, we use local projections to investigate the impact of consolidation shocks on GDP growh, conditional on the fragility of government finances. Based on the database of fiscal plans in OECD countries, we show that spending shocks are less detrimental than tax-based consolidation. In times of fiscal fragility, our results indicate strongly that governments should consolidate through surprise policy changes rather than announcements of consolidation at a later horizon.

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