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Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 1999:9:
The Effects of Fiscal Contractions: A Circumstantial Approach

Göran Hjelm ()

Abstract: Why do some fiscal contractions generate a favorable macroeconomic outcome while others do not? Using both descriptive statistics and regression analysis of 19 OECD countries for the period 1970-97, this paper finds that preceding depreciations are important for a favorable macroeconomic outcome and, in particular, private consumption response to a fiscal contraction. The same appears to be true for high preceding growth (not the level) of the debt ratio. Hence, the results suggest that one has to be cautious when interpreting the causes of the effects of fiscal contractions as preceding circumstances matter.

Keywords: Fiscal policy; Devaluation; Debt; Panel data; (follow links to similar papers)

JEL-Codes: E21; E63; H30; (follow links to similar papers)

29 pages, December 16, 1999

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This paper is published as:
Hjelm, Göran, (2002), 'The Effects of Fiscal Contractions: The Importance of Preceding Exchange Rate Movements', Scandinavian Journal of Economics, Vol. 104, No. 3, pages 423-441



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