Veranstaltungen des DIW Berlin/
Events of DIW Berlin

15 February 2017

DIW Seminar on Macroeconomics and Financial Markets Is it the "How" or the "When" that Matters in Fiscal Adjustments?

Using data from 16 OECD countries from 1981 to 2014 we find that the composition of fiscal adjustments is much more important than the state of the cycle in determining their e¤ects on output. Adjustments based upon spending cuts are much less costly than those based upon tax increases regardless of whether they start in a recession or not. Our results appear not to be systematically explained by di¤erent reactions of monetary policy. However, when the domestic central bank can set interest rates - that is outside of a currency union - it appears to be able to dampen the recessionary e¤ects of tax-based consolidations implemented during a recession. This finding could help understand the recessionary e¤ects of European "austerity", which was mostly tax based and implemented within a currency union.

Joint work with Alberto Alesina, Gualtiero Azzalini, Francesco Giavazzi and Armando Miano.

More Information
Speaker
  • Carlo Favero, Bocconi University

  • Location
    DIW Berlin (Gustav-Schmoller-Raum) DIW Berlin im Quartier 110 Room 3.3.002A Mohrenstraße 58 10117 Berlin
    Contact(s)
    at DIW Berlin
    Tel.: +49 30 89789 581