Department of Economics
Cambridge, MA 02138
Institutional Affiliation: Harvard University
NBER Working Papers and Publications
|May 2017||The Effects of Fiscal Consolidations: Theory and Evidence|
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We investigate the macroeconomic effects of fiscal consolidations based upon government spending cuts, transfers cuts and tax hikes. We extend a narrative dataset of fiscal consolidations, with details on over 3500 measures for 16 OECD countries. We show that government spending cuts and cuts in transfers are much less harmful than tax hikes, despite the fact that non-distortionary transfers are not classified as spending. Standard New Keynesian models robustly match our results when fiscal shocks are persistent. Wealth effects on aggregate demand mitigate the impact of a persistent spending cut. Static distortions caused by persistent tax hikes cause larger shifts in aggregate supply under sticky prices.
|January 2015||Austerity in 2009-2013|
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The conventional wisdom is (i) that fiscal austerity was the main culprit for the recessions experienced by many countries, especially in Europe, since 2010 and (ii) that this round of fiscal consolidation was much more costly than past ones. The contribution of this paper is a clarification of the first point and, if not a clear rejection, at least it raises doubts on the second. In order to obtain these results we construct a new detailed "narrative" data set which documents the actual size and composition of the fiscal plans implemented by several countries in the period 2009-2013. Out of sample simulations, that project output growth conditional only upon the fiscal plans implemented since 2009 do reasonably well in predicting the total output fluctuations of the countries in our sampl...
Published: in "Economic Policy," Volume 30, Issue 83, July 2015, Pages 383–437, https://doi.org/10.1093/epolic/eiv006
|October 2014||Political Budget Cycles: Evidence from Italian Cities|
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The introduction of a new real estate taxes in Italy in 2011 generated a natural experiment, which is useful to test political budget cycles, i.e. the strategic choice of fiscal variables in relation to elections. We do find substantial evidence of political budget cycles, with municipalities choosing lower tax rates when close to elections. We observe this budget cycle only for smaller municipalities where the tax was more likely to be the single most important issue for the local government. Cities close to elections with large deficits did not set lower rates before elections, probably because they felt the binding constraints of budget rules.
Published: Alberto Alesina & Matteo Paradisi, 2017. "Political budget cycles: Evidence from Italian cities," Economics & Politics, vol 29(2), pages 157-177. citation courtesy of