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Effects of Fiscal Consolidation in 18 OECD Countries

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Authors
Jeong, Kwang Jo
Issue Date
2017-01
Publisher
Institute of Economic Research, Seoul National University
Citation
Seoul Journal of Economics, Vol.30 No.1, pp. 51-91
Keywords
Fiscal consolidationEconomic growthDebt-to-GDP ratioSovereign default risk
Abstract
This paper estimates the effects of fiscal consolidation on economic growth using panel datasets from 18 Organization for Economic Cooperation and Development (OECD) countries. The estimates of dynamic panel data Generalized Method of Moment (GMM) analysis show that fiscal consolidation is unlikely to be expansionary for GDP growth. Both Arellano-Bond difference GMM estimation and Blundell-Bond system GMM estimation suggest that fiscal consolidation exert negative effects on economic growth. Results do not support the expansionary fiscal consolidation hypothesis. In particular, our analyses find that fiscal consolidations during high debt-to-GDP ratios, based on spending cuts, or with high sovereign default risk exert less negative effects on economic growth than those during low debt-to-GDP ratios, based on tax hikes, or with low sovereign default risk.
ISSN
1225-0279
Language
English
URI
https://hdl.handle.net/10371/109923
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of Economics (SJE)Seoul Journal of Economics vol.30 no.1~4 (2017)
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