Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89663
Authors: 
Holden, Steinar
Midthjell, Nina Larsson
Year of Publication: 
2013
Series/Report no.: 
CESifo Working Paper 4456
Abstract: 
We examine fiscal adjustment episodes in 24 OECD countries in order to find how austerity affects debt and growth, and whether the choice of fiscal instrument matters for the results. Influential existing studies argue that spending cuts are more likely to successfully reduce debt and enhance economic growth than tax increases. Our main innovations over these studies are to better account for initial conditions and to employ a novel and more precise measure of actual changes in fiscal policy. We find that whether a fiscal adjustment is successful in reducing debt depends on whether the adjustment was sufficiently large to remove the budget deficit. We find no indication that it matters whether the adjustment is achieved via spending cuts or tax increases, and this conclusion holds also for the effect on economic growth.
Subjects: 
fiscal adjustment
fiscal consolidation
JEL: 
H20
H30
H50
H62
Document Type: 
Working Paper

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