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- Title
Action-Based Fiscal Consolidations and Economic Growth.
- Authors
Brueckner, Markus
- Abstract
This paper tests the hypothesis that action-based fiscal consolidations have a negative effect on GDP growth. Using the IMF's dataset on action-based fiscal consolidations, instrumental variables' regressions show that action-based fiscal consolidations have a significant positive effect on GDP growth. The instrumental variables' regressions also show that action-based fiscal consolidations significantly increase investment and productivity. The findings presented in this paper thus strongly reject the hypothesis that action-based fiscal consolidations reduce growth. The paper argues that least squares estimates presented in previous literature suffer from negative reverse causality bias: GDP growth has a significant positive effect on both the likelihood and the magnitude of action-based fiscal consolidations. To uncover causal effects of action-based fiscal consolidations, researchers need to use an instrumental variables approach.
- Subjects
INTERNATIONAL Monetary Fund; ECONOMIC expansion; LEAST squares; RESEARCH personnel; GROSS domestic product; SIMULTANEOUS equations
- Publication
Journal of Risk & Financial Management, 2024, Vol 17, Issue 5, p194
- ISSN
1911-8066
- Publication type
Article
- DOI
10.3390/jrfm17050194