Author(s)

El-Shagi, Makram / von Schweinitz, Gregor


Abstract

In this paper, we use local projections to investigate the impact of consolidation shocks on GDP growth, conditional on the fragility of government finances. Based on a 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.

Keywords

Fiscal multipliers, Fiscal consolidation, Local projections

Get Full Article

El-Shagi, M. / von Schweinitz, G.: Fiscal Policy and fiscal fragility: Empirical evidence from the OECD, in: Journal of International Money and Finance, Vol. 115, 102292, 2021