Is fiscal fatigue a threat to consolidation programmes?

Abstract

Additional Information:• This paper was accepted for publication in the journal Environment and Abstract. Building on a narrative approach to identify episodes of fiscal consolidation, data for a group of seventeen industrial countries over the period 1978-2009, and continuous-time duration models, we find evidence suggesting that the likelihood of a fiscal consolidation ending increases over time, but only for programmes that last fewer 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 behaviour of fiscal authorities is a means of achieving credible and shorter adjustment measures. Therefore, fiscal fatigue is likely to compromise the implementation and successfulness of fiscal consolidation programmes.

Booms, Busts, and Normal Times in the Housing Market

“…either constant, or increasing, or decreasing), we conjecture that the likelihood of a housing boom or a housing bust ending may change after a certain duration. In this context, we follow the general Weibull model framework with a change-point that has been developed by Castro (2013) -to assess the drivers of the length of the business cycle -and retaken by Agnello et al (2013aAgnello et al ( , 2013b) -for the purposes of evaluating the determinants of the duration of …scal consolidation programmes -, and apply it to the case of the housing market cycle. Apart from granting more ‡exibility in terms of modelling, it also makes it possible for us to evaluate the extent to which the hazard function exhibits some nonlinearity over time.…”

A competing risks tale on successful and unsuccessful fiscal consolidations

“…However, with bigger packages the risk of failure increases relatively to being successful (see columns, 3, 6 and 9). This evidence might be related to the "fiscal fatigue" effects identified by Agnello et al (2015a), which can risk the likelihood of success of fiscal consolidation efforts. 10 Additionally, spending-driven consolidations seem to be linked with shorter consolidations that end successfully compared to tax-driven consolidations, but the effect is statistically weak.…”

“…Yet, when growth is low and debt levels are high and rising steadily, a "cold shower" fiscal package can be more effective (European Commission, 2007;Barrios et al, 2010). Similarly, Agnello et al (2015a) find evidence of "fiscal fatigue", that is, when a fiscal consolidation episode lasts for a relatively long period of time, the likelihood that the adjustment process will be reversed is higher.…”

“…Moreover, Agnello at al. (2015a) note that fiscal fatigue can compromise the implementation and successfulness of fiscal consolidations.…”

Gestión estratégica, crecimiento económico y productividad

“…En el modelo aplicado por Ghosh et al, (2013) definen el espacio fiscal como la distancia entre el nivel de deuda actual y un límite de deuda más allá del cual la solvencia fiscal está en duda. A medida que el resultado primario exhibe fatiga fiscal es decir, cuando los saldos primarios no pueden seguir el ritmo del aumento del endeudamiento para garantizar su estabilidad o sostenibilidad, existe la posibilidad de que el comportamiento de la deuda sea explosiva, dado que el pago de intereses se acrecienta, y la probabilidad de incumplimiento aumenta, así como el aumento de la prima de riesgo, de este modo, también, la fatiga fiscal puede ser una amenaza para la implementación de la consolidación fiscal (Agnello, Castro, & Sousa, 2015). En el punto de límite de deuda el Gobierno pierde acceso a los mercados, no puede reperfilar su deuda y por ende, tiene que incumplir.…”