Scandinavian Working Papers in Economics
Working Papers,
National Institute of Economic Research
No 92: When Are Fiscal Contractions Successful? Lessons for Countries Within and Outside the EMU
Göran Hjelm ()
Additional contact information
Göran Hjelm: National Institute of Economic Research, Postal: National Institute of Economic Research, P.O. Box 3116, SE-103 62 Stockholm, Sweden
Abstract: In the past 25 years, many OECD countries have implemented fiscal contractions to strengthen their public finances. The macroeconomic outcomes of these efforts have
varied. With the aid of an econometric model, this paper seeks to identify the factors
that make contractions successful from a macroeconomic standpoint. The findings
suggest, among other things, that favorable changes in the real exchange rate prior
to the period of fiscal contraction and in the real quantity of money during this period
play an important part in the macroeconomic outcome. This indicates in turn that it
may be more difficult to implement successful fiscal contractions within the EMU. The
findings also show that the composition of the contraction in regard to the relative
proportions of tax increases and expenditure cutbacks, respectively, is probably less
important than has usually been assumed.
Keywords: Fiscal Contractions; Fiscal Policy; Real Exchange Rate; EMU
27 pages, June 16, 2004
Full text files
Working-Paper-92-Whe...-Outside-the-EMU.pdf
- Published as
- Göran Hjelm, (2007), 'Expansionary Fiscal Contractions: a Standard Keynesian Explanation', Journal of Post Keynesian Economics, vol 29, no 2, pages 327-358
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