Event Details

Title: Fiscal consolidations: announcements and reality

Abstract: A large literature finds that consolidations based on announcements of tax increases lead to declines in GDP, while consolidations based on announcements of expenditure cuts are associated with almost no change in GDP. We study the response of actual (as opposed to announced) discretionary government spending and

revenues, and find that the former does not decline in what are classified (on the basis of announcements) as "expenditure-based" consolidations, but does decline by a large amount in "tax-based" consolidations; actual discretionary revenues move little in both regimes. Thus, we reach the opposite conclusions than implied by most of the recent literature.