Fiscal consolidation and reforms: Substitutes, not complements

Coen Teulings 13 September 2012

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Many OECD countries suffer from high sovereign debts. Sooner or later, this problem must be addressed. That will require some form of fiscal retrenchment.

Quite often the fiscal problems are due to market rigidities, barriers to entry, and distortive tax systems. A programme of reform must therefore include both fiscal consolidation and institutional reform to enhance future growth. Growth and the larger tax base that goes with it provides the best prospect for solving the fiscal problems.

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Topics:  Macroeconomic policy Taxation

Tags:  Institutional reform, fiscal crises, Fiscal retrenchment, austerity

Fiscal adjustments and the recession

Alberto Alesina 12 November 2010

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Many European countries are engaged in large fiscal adjustments. The standard Keynesian view is that these adjustments will cause deep recessions especially if they occur on the spending side (see for example Krugman 2010). A lively literature initiated by a paper by Giavazzi and Pagano (1990) has uncovered “non-Keynesian” effects of large fiscal adjustments. The latest instalment of this line of research is a paper that I co-authored with Silvia Ardagna (Alesina and Ardagna 2010).

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Topics:  Macroeconomic policy

Tags:  Fiscal crisis, budget cuts, Fiscal retrenchment