OECD Economics Department Working Papers

ISSN :
1815-1973 (online)
DOI :
10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
 

Fiscal Consolidation: Part 4. Case Studies of Large Fiscal Consolidation Episodes You or your institution have access to this content

Authors:
Hansjörg Blöchliger1, Dae-Ho Song1, Douglas Sutherland
Author Affiliations
  • 1: OECD, France

Publication Date
16 Feb 2012
Bibliographic information
No.:
935
Pages
40
DOI
10.1787/5k9fdf5xptlq-en

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This paper provides an analysis of large and sustained fiscal consolidation episodes in OECD countries implemented between 1980 and 2000. It reviews how fiscal policy variables evolved during these episodes, how consolidation was influenced by the wider economic environment, and how the political economy side helped trigger and sustain consolidation efforts. Results suggest that successful consolidation – as measured by deficit reduction and debt stabilisation or decline – was driven by spending cuts and to a lesser extent by revenue increases. Most episodes started on a basis of improving competitiveness following currency depreciation and, in turn, favourable growth prospects, closing output gaps and – with some lag – falling unemployment. Interest rates started to decline two years after consolidation had started, suggesting that it took some time to earn credibility. With regard to political economy, most consolidation episodes were implemented shortly after an election. More than half of the governments that had started consolidation were re-elected, and some even strengthened consolidation efforts after then. In some cases, an incoming government of a different political colour pursued consolidation.
JEL Classification:
  • E62: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Fiscal Policy
  • E65: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Studies of Particular Policy Episodes
  • H60: Public Economics / National Budget, Deficit, and Debt / General