Cross - country spillovers from fiscal consolidations Antoine Goujard
By: Goujard, Antoine
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Material type: 
ArticlePublisher: 2017Subject(s): POLITICA FISCAL | CONSOLIDACION | GASTO PUBLICO | DEFICIT PUBLICO | REDUCCION
In:
Fiscal Studies v. 38, n. 2, June 2017, p. 219-267Summary: In the aftermath of the global financial crisis, many OECD countries adopted fiscal consolidation strategies to reduce their debt-to-GDP ratios. This paper investigates the effects of fiscal consolidation on trading partners. growththrough trade linkages. Using a measure of exogenous fiscal shocks in exportmarkets, fiscal consolidation spillovers are found to slow down domestic growth and decrease employment. To the extent that fiscal consolidations are synchronised, fiscal policies have large spillover effects on output. Spillovers of fiscal consolidations on growth are found to be initially larger betweencountries belonging to currency unions, though this larger impact vanishes over the medium term. Larger spillovers of fiscal consolidation coincide with lower bilateral exports, higher bilateral imports and relative increases in unitlabour costs in currency unions. Spillovers of fiscal consolidation are also found to be more detrimental to domestic growth during economic downturns in export markets.
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|---|---|---|---|---|---|---|
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In the aftermath of the global financial crisis, many OECD countries adopted fiscal consolidation strategies to reduce their debt-to-GDP ratios. This paper investigates the effects of fiscal consolidation on trading partners. growththrough trade linkages. Using a measure of exogenous fiscal shocks in exportmarkets, fiscal consolidation spillovers are found to slow down domestic growth and decrease employment. To the extent that fiscal consolidations are synchronised, fiscal policies have large spillover effects on output. Spillovers of fiscal consolidations on growth are found to be initially larger betweencountries belonging to currency unions, though this larger impact vanishes over the medium term. Larger spillovers of fiscal consolidation coincide with lower bilateral exports, higher bilateral imports and relative increases in unitlabour costs in currency unions. Spillovers of fiscal consolidation are also found to be more detrimental to domestic growth during economic downturns in export markets.
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