Fiscal Consolidation: Part 4. Case Studies of Large Fiscal Consolidation Episodes

Abstract

This paper provides an analysis of large and sustained fiscal consolidation episodes in OECD countries implemented between 1980 and 2000. It reviews how fiscal policy variables evolved during these episodes, how consolidation was influenced by the wider economic environment, and how the political economy side helped trigger and sustain consolidation efforts. Results suggest that successful consolidation – as measured by deficit reduction and debt stabilisation or decline – was driven by spending cuts and to a lesser extent by revenue increases. Most episodes started on a basis of improving competitiveness following currency depreciation and, in turn, favourable growth prospects, closing output gaps and – with some lag – falling unemployment. Interest rates started to decline two years after consolidation had started, suggesting that it took some time to earn credibility. With regard to political economy, most consolidation episodes were implemented shortly after an election. More than half of the governments that had started consolidation were re-elected, and some even strengthened consolidation efforts after then. In some cases, an incoming government of a different political colour pursued consolidation. Consolidation budgetaire : Partie 4. Etudes de cas de redressements budgetaires passes de grande envergure Ce document analyse les phases anterieures de corrections budgetaires fortes et durables dans des pays de l’OCDE intervenues entre 1980 et 2000. Il examine l’evolution des variables de la politique budgetaire au cours de ces phases, l’influence de l’environnement economique global sur le redressement budgetaire et le role des considerations d’economie politique dans le declenchement et le maintien des efforts d’assainissement. Les resultats laissent penser qu’un programme de redressement reussi (reduction du deficit et stabilisation ou reduction de la dette) repose sur une contraction des depenses et, dans une moindre mesure, une augmentation des recettes. La plupart des corrections ont ete amorcees alors que la competitivite s’ameliorait a la suite d’une depreciation de la monnaie, induisant des perspectives de croissance plus favorables, une reduction des ecarts de production et, avec un certain decalage, un recul du chomage. Les taux d’interet ont commence a baisser deux ans apres le debut de la correction, ce qui montre qu’il faut un certain temps pour acquerir une credibilite. S’agissant d’economie politique, la plupart des corrections ont ete engagees peu apres une election. Plus de la moitie des gouvernements qui avaient amorce un resserrement ont ete reelus et certains l’ont meme accentue ensuite. Il est arrive aussi qu’un nouveau gouvernement poursuive l’action de redressement.