The role of social expenditures in budget consolidations - an analysis of the fiscal and macroeconomic effects

Norbert Gruber

Publication: ThesisDoctoral thesis

Abstract

This paper reviews and summarizes the literature that has concentrated on budget consolidations and their
fiscal and economic effects. The issue of fiscal adjustments has again gained importance due to the recent
economic crisis and the resulting fiscal imbalances. The existing literature shows that there may be some
factors that influence the fiscal and economic impact depending on the methods used and the underlying
assumptions. Referring to the fiscal impact of consolidations, this paper concludes that the composition of
the adjustment is the most influential factor in reducing public deficits and debt. This result is in line with
other recent literature surveys. Other factors mentioned in the underlying studies include the specialization
in certain expenditure areas like public administration and social security, the size of the adjustment, the
initial state of public finances and the economy before consolidation, fiscal rules, political and monetary
institutions. In contrast to the fiscal effects, the results of the studies concentrating on economic effects vary
substantially. Since the early 90's there has been a lively debate about the possibility of non-Keynesian
effects after consolidations. Despite the fact that there is no consensus about possible expansive effects of
consolidations, this paper concludes that a substantial share of the previous work finds that large negative
effects do not necessarily have to prevail. Whether these reversed effects are strong enough to turn
restrictive effects into expansive ones depends on different factors, which are similar to those mentioned
before in the fiscal effects context. (author's abstract)
Original languageEnglish
Awarding Institution
  • Vienna University of Economics and Business
Publication statusPublished - 1 Feb 2013

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