Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/233800 
Year of Publication: 
2021
Series/Report no.: 
EconPol Working Paper No. 55
Publisher: 
ifo Institute - Leibniz Institute for Economic Research at the University of Munich, Munich
Abstract: 
We empirically assess whether a usually expected negative response of private consumption and private investment to a fiscal consolidation is reversed. We focus on a large sample of 174 countries between 1970 and 2018. We also employ three alternative measures of the Cyclically Adjusted Primary Balance used to determine fiscal episodes: i) the IMF-WEO based; ii) the HP-based; and iii) the Hamilton (2018)-based. We find that: i) increases in government consumption have a Keynesian effect on real per capita private consumption; ii) there is a positive effect of tax increases on private consumption when there is a fiscal consolidation; iii) there is a crowding-in effect for private investment, from fiscal contractions. Moreover, expansionary fiscal consolidations occur particularly in highly indebted advanced economies following an increase in taxes. Finally, the negative effect of taxation on private consumption is larger when an economy is experiencing a financial crisis but it is not consolidating.
Subjects: 
non-Keynesian effects
fiscal consolidation
filtering
consumption
investment
financial crises
panel data
endogeneity
JEL: 
C23
E21
E62
H5
H62
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.