Are there change-points in the likelihood of a fiscal consolidation ending?

• Author(s): Agnelllo, Luca ; Castro, Vítor ; Sousa, Ricardo M.
• Date: 2012
• Persistent ID: http://hdl.handle.net/1822/22470
• Origin: RepositóriUM - Universidade do Minho
• Subject(s): Fiscal consolidations; Duration analysis; Weibull Model; Duration dependence; Change-points
• Document Type: Research paper
• Language: English

Description

Building on a narrative approach to identify episodes of fiscal consolidation, data for a group of 17 industrial countries over the period 1978-2009 and both continuous-time and discrete-time duration models, we find evidence suggesting that likelihood of a fiscal consolidation ending increases over time, but only for programs that last less than six years. Additionally, fiscal consolidations tend to last longer in non-European than in European countries. Our results emphasize that chronic fiscal imbalances might lead to a vicious austerity cycle, while discipline in the behavior of fiscal authorities is a means of achieving credible and shorter adjustment measures.