S-Space 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)
Effects of Fiscal Consolidation in 18 OECD Countries
- Jeong, Kwang Jo
- Issue Date
- Seoul Journal of Economics, Vol.30 No.1, pp. 51-91
- 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.