Output effects of fiscal consolidations: does spending composition matter?

This paper studies whether changes in the composition of public spending affect the macroeconomic consequences of fiscal consolidations. Based on a sample of 52 developing countries and 18 advanced economies during 1980-2019, results show that while fiscal consolidations tend to be on average, contr...

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Autores principales: Puig, Jorge Pablo, Ardanaz, Martín, Cavallo, Eduardo, Izquierdo, Alejandro
Formato: Objeto de conferencia
Lenguaje:Inglés
Publicado: 2021
Materias:
Ciencias Económicas
Fiscal consolidations
public investment
public consumption
fiscal multiplier
Acceso en línea:http://sedici.unlp.edu.ar/handle/10915/169305
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SEDICI (UNLP) de Universidad Nacional de La Plata
id I19-R120-10915-169305
record_format dspace
spelling I19-R120-10915-1693052024-08-29T20:08:08Z http://sedici.unlp.edu.ar/handle/10915/169305 Output effects of fiscal consolidations: does spending composition matter? Puig, Jorge Pablo Ardanaz, Martín Cavallo, Eduardo Izquierdo, Alejandro 2021-11 2021 2024-08-29T16:45:27Z en Ciencias Económicas Fiscal consolidations public investment public consumption fiscal multiplier This paper studies whether changes in the composition of public spending affect the macroeconomic consequences of fiscal consolidations. Based on a sample of 52 developing countries and 18 advanced economies during 1980-2019, results show that while fiscal consolidations tend to be on average, contractionary, the size of the output fall depends on the behavior of public investment vis-a-vis public consumption during the fiscal adjustment, with heterogeneous responses growing over time. When public investment is penalized relative to public consumption and thus, its share in public expenditures decreases, a 1 percent of GDP consolidation reduces output by 0.7 percent within three years of the fiscal shock. In contrast, fiscal consolidations can even be expansionary in countries that protect public investment visa-vis public consumption the most: a similar-sized consolidation leads to an increase in output of about 0.9 percent within the same time frame. The component of GDP that mostly drives the heterogeneity between both types of adjustments is private investment. The results hold up to a number of robustness tests, including alternative identification strategies of fiscal shocks. The findings have policy implications for the design fiscal adjustment strategies to protect economic growth as countries recover from the coronavirus pandemic. Facultad de Ciencias Económicas Objeto de conferencia Objeto de conferencia http://creativecommons.org/licenses/by-nc-sa/4.0/ Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International (CC BY-NC-SA 4.0) application/pdf
institution Universidad Nacional de La Plata
institution_str I-19
repository_str R-120
collection SEDICI (UNLP)
language Inglés
topic Ciencias Económicas
Fiscal consolidations
public investment
public consumption
fiscal multiplier
spellingShingle Ciencias Económicas
Fiscal consolidations
public investment
public consumption
fiscal multiplier
Puig, Jorge Pablo
Ardanaz, Martín
Cavallo, Eduardo
Izquierdo, Alejandro
Output effects of fiscal consolidations: does spending composition matter?
topic_facet Ciencias Económicas
Fiscal consolidations
public investment
public consumption
fiscal multiplier
description This paper studies whether changes in the composition of public spending affect the macroeconomic consequences of fiscal consolidations. Based on a sample of 52 developing countries and 18 advanced economies during 1980-2019, results show that while fiscal consolidations tend to be on average, contractionary, the size of the output fall depends on the behavior of public investment vis-a-vis public consumption during the fiscal adjustment, with heterogeneous responses growing over time. When public investment is penalized relative to public consumption and thus, its share in public expenditures decreases, a 1 percent of GDP consolidation reduces output by 0.7 percent within three years of the fiscal shock. In contrast, fiscal consolidations can even be expansionary in countries that protect public investment visa-vis public consumption the most: a similar-sized consolidation leads to an increase in output of about 0.9 percent within the same time frame. The component of GDP that mostly drives the heterogeneity between both types of adjustments is private investment. The results hold up to a number of robustness tests, including alternative identification strategies of fiscal shocks. The findings have policy implications for the design fiscal adjustment strategies to protect economic growth as countries recover from the coronavirus pandemic.
format Objeto de conferencia
Objeto de conferencia
author Puig, Jorge Pablo
Ardanaz, Martín
Cavallo, Eduardo
Izquierdo, Alejandro
author_facet Puig, Jorge Pablo
Ardanaz, Martín
Cavallo, Eduardo
Izquierdo, Alejandro
author_sort Puig, Jorge Pablo
title Output effects of fiscal consolidations: does spending composition matter?
title_short Output effects of fiscal consolidations: does spending composition matter?
title_full Output effects of fiscal consolidations: does spending composition matter?
title_fullStr Output effects of fiscal consolidations: does spending composition matter?
title_full_unstemmed Output effects of fiscal consolidations: does spending composition matter?
title_sort output effects of fiscal consolidations: does spending composition matter?
publishDate 2021
url http://sedici.unlp.edu.ar/handle/10915/169305
work_keys_str_mv AT puigjorgepablo outputeffectsoffiscalconsolidationsdoesspendingcompositionmatter
AT ardanazmartin outputeffectsoffiscalconsolidationsdoesspendingcompositionmatter
AT cavalloeduardo outputeffectsoffiscalconsolidationsdoesspendingcompositionmatter
AT izquierdoalejandro outputeffectsoffiscalconsolidationsdoesspendingcompositionmatter
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