Working Paper: NBER ID: w15438
Authors: Alberto F. Alesina; Silvia Ardagna
Abstract: We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis.
Keywords: Fiscal Policy; Tax Cuts; Spending Increases; Economic Growth; Public Debt
JEL Codes: H2; H3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax cuts (H29) | economic growth (O49) |
| spending increases (H59) | economic growth (O49) |
| spending cuts (H56) | public debt stabilization (H63) |
| tax increases (H29) | public debt stabilization (H63) |
| current spending-to-GDP ratio (E62) | economic growth (O49) |
| spending cuts (H56) | economic expansions (E32) |