DP12133 Revenue- versus spending-based fiscal consolidation announcements: follow-up, multipliers and confidence

Author(s): Roel Beetsma, Oana Furtuna, Massimo Giuliodori, Haroon Mumtaz
Publication Date: July 2017
Date Revised: March 2020
Keyword(s): confidence, fiscal consolidation announcements, Fiscal multipliers, follow-up, narrative identification, panel vector auto-regression
JEL(s): E21, E62, H5
Programme Areas: International Macroeconomics and Finance, Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12133

Based on a newly-constructed narrative dataset on fiscal consolidation announcements for thirteen EU countries over the period 1978-2013, a panel VAR analysis shows that revenue-based consolidation announcements affect economic activity more adversely than do spending-based announcements. The combination of larger actual follow-up and larger revenue multipliers helps to explain the difference. The unique nature of our dataset allows to control for fiscal anticipation and the confidence channel following the announcements. The confidence channel has an important role in explaining the difference in the multipliers following the two types of announcements.