IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_9761.html
   My bibliography  Save this paper

Are Fiscal Consolidation Episodes Helpful for Public Sector Efficiency?

Author

Listed:
  • António Afonso
  • José Alves

Abstract

We assess the consequences of fiscal consolidation episodes on public sector efficiency (scores) for 35 OECD countries for the 2007-2020 period. We find that fiscal consolidations improve public sector efficiency and results are robust across efficiency models. Moreover, peripheral euro-area economies and economies with debt-to-GDP ratios between 60% and 90% are those whose public sector efficiency scores improve more when fiscal consolidation episodes occur. The evidence that fiscal consolidations enhance spending efficiency is an additional argument for fiscal consolidations, from a policy perspective.

Suggested Citation

  • António Afonso & José Alves, 2022. "Are Fiscal Consolidation Episodes Helpful for Public Sector Efficiency?," CESifo Working Paper Series 9761, CESifo.
    • Handle: RePEc:ces:ceswps:_9761
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp9761.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Tavares, Jose, 2004. "Does right or left matter? Cabinets, credibility and fiscal adjustments," Journal of Public Economics, Elsevier, vol. 88(12), pages 2447-2468, December.
    2. Dutu Richard & Sicari Patrizio, 2020. "Public Spending Efficiency in the OECD: Benchmarking Health Care, Education, and General Administration," Review of Economic Perspectives, Sciendo, vol. 20(3), pages 253-280, September.
    3. Òscar Jordà & Alan M. Taylor, 2016. "The Time for Austerity: Estimating the Average Treatment Effect of Fiscal Policy," Economic Journal, Royal Economic Society, vol. 126(590), pages 219-255, February.
    4. Roberto Perotti, 1999. "Fiscal Policy in Good Times and Bad," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1399-1436.
    5. Maria Alessandra Antonelli & Valeria De Bonis, 2019. "The efficiency of social public expenditure in European countries: a two-stage analysis," Applied Economics, Taylor & Francis Journals, vol. 51(1), pages 47-60, January.
    6. Hommes, Cars & Lustenhouwer, Joep & Mavromatis, Kostas, 2018. "Fiscal consolidations and heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 87(C), pages 173-205.
    7. Alberto Alesina & Carlo Favero & Francesco Giavazzi, 2019. "Effects of Austerity: Expenditure- and Tax-Based Approaches," Journal of Economic Perspectives, American Economic Association, vol. 33(2), pages 141-162, Spring.
    8. Feldstein, Martin, 1982. "Government deficits and aggregate demand," Journal of Monetary Economics, Elsevier, vol. 9(1), pages 1-20.
    9. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    10. Afonso, António & Alves, José & Jalles, João Tovar, 2022. "The (non-)Keynesian effects of fiscal austerity: New evidence from a large sample," Economic Systems, Elsevier, vol. 46(2).
    11. Antonio Afonso & Ludger Schuknecht & Vito Tanzi, 2010. "Public sector efficiency: evidence for new EU member states and emerging markets," Applied Economics, Taylor & Francis Journals, vol. 42(17), pages 2147-2164.
    12. Julio Escolano & Laura Jaramillo & Carlos Mulas-Granados, 2018. "How much is a lot? The maximum size of fiscal adjustments," Journal of Applied Economics, Taylor & Francis Journals, vol. 21(1), pages 137-159, January.
    13. Wiese, Rasmus & Jong-A-Pin, Richard & de Haan, Jakob, 2018. "Can successful fiscal adjustments only be achieved by spending cuts?," European Journal of Political Economy, Elsevier, vol. 54(C), pages 145-166.
    14. Hauner, David & Kyobe, Annette, 2010. "Determinants of Government Efficiency," World Development, Elsevier, vol. 38(11), pages 1527-1542, November.
    15. Sutherland, Alan, 1997. "Fiscal crises and aggregate demand: can high public debt reverse the effects of fiscal policy?," Journal of Public Economics, Elsevier, vol. 65(2), pages 147-162, August.
    16. António Afonso & Ludger Schuknecht & Vito Tanzi, 2005. "Public sector efficiency: An international comparison," Public Choice, Springer, vol. 123(3), pages 321-347, June.
    17. António Afonso & Michael G. Arghyrou & Alexandros Kontonikas, 2014. "Pricing Sovereign Bond Risk In The European Monetary Union Area: An Empirical Investigation," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 19(1), pages 49-56, January.
    18. António Afonso & Alma Romero & Emma Monsalve, 2013. "Public sector efficiency: evidence for Latin America," Working Papers Department of Economics 2013/20, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    19. Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for non-linear effects of fiscal policy: Evidence from industrial and developing countries," European Economic Review, Elsevier, vol. 44(7), pages 1259-1289, June.
    20. Yang, Weonho & Fidrmuc, Jan & Ghosh, Sugata, 2015. "Macroeconomic effects of fiscal adjustment: A tale of two approaches," Journal of International Money and Finance, Elsevier, vol. 57(C), pages 31-60.
    21. Niklas Potrafke, 2011. "Does government ideology influence budget composition? Empirical evidence from OECD countries," Economics of Governance, Springer, vol. 12(2), pages 101-134, June.
    22. António Afonso & João Tovar Jalles & Ana Venâncio, 2021. "Taxation and Public Spending Efficiency: An International Comparison," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(3), pages 356-383, September.
    23. Bertola, Giuseppe & Drazen, Allan, 1993. "Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity," American Economic Review, American Economic Association, vol. 83(1), pages 11-26, March.
    24. Antonis Adam & Manthos Delis & Pantelis Kammas, 2011. "Public sector efficiency: leveling the playing field between OECD countries," Public Choice, Springer, vol. 146(1), pages 163-183, January.
    25. repec:idb:brikps:80478 is not listed on IDEAS
    26. Gupta, Sanjeev & Verhoeven, Marijn, 2001. "The efficiency of government expenditure: experiences from Africa," Journal of Policy Modeling, Elsevier, vol. 23(4), pages 433-467, May.
    27. Olivier J Blanchard & Daniel Leigh, 2014. "Learning about Fiscal Multipliers from Growth Forecast Errors," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(2), pages 179-212, June.
    28. Bergman, U. Michael & Hutchison, Michael M. & Jensen, Svend E. Hougaard, 2016. "Promoting sustainable public finances in the European Union: The role of fiscal rules and government efficiency," European Journal of Political Economy, Elsevier, vol. 44(C), pages 1-19.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carvelli, Gianni, 2024. "The dynamic effects of public investments on private capital formation: Modelling a heterogeneous asymmetric cointegration with unobserved global factors," International Economics, Elsevier, vol. 177(C).
    2. António Afonso & José Alves & Najat Bazah, 2024. "Public Sector Efficiency and the Functions of the Government," Working Papers REM 2024/0357, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    3. López-Herrera, Carmen & Cordero, José M. & Pedraja-Chaparro, Francisco & Polo, Cristina, 2023. "Fiscal rules and their influence on public sector efficiency," MPRA Paper 119018, University Library of Munich, Germany.
    4. António Afonso & José Alves & Najat Bazah, 2024. "Public Sector Efficiency and the Functions of the Government," Working Papers REM 2024/0357, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Afonso, António & Alves, José & Jalles, João Tovar, 2022. "The (non-)Keynesian effects of fiscal austerity: New evidence from a large sample," Economic Systems, Elsevier, vol. 46(2).
    2. António Afonso & José Alves, 2022. "Does government spending efficiency improve fiscal sustainability?," Working Papers REM 2022/0226, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    3. António Afonso & João Tovar Jalles & Ana Venâncio, 2023. "Government Spending and Tax Revenue Decentralization and Public Sector Efficiency: Do Natural Disasters matter?," Working Papers REM 2023/0271, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    4. López-Herrera, Carmen & Cordero, José M. & Pedraja-Chaparro, Francisco & Polo, Cristina, 2023. "Fiscal rules and their influence on public sector efficiency," MPRA Paper 119018, University Library of Munich, Germany.
    5. António Afonso & João Tovar Jalles & Ana Venâncio, 2024. "A tale of government spending efficiency and trust in the state," Public Choice, Springer, vol. 200(1), pages 89-118, July.
    6. Afonso, António & Tovar Jalles, João & Venâncio, Ana, 2022. "Do financial markets reward government spending efficiency?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    7. Georgantas, Georgios & Kasselaki, Maria & Tagkalakis, Athanasios, 2023. "Τhe effects of fiscal consolidation in OECD countries," Economic Modelling, Elsevier, vol. 118(C).
    8. António Afonso & João Tovar Jalles & Ana Venâncio, 2021. "Taxation and Public Spending Efficiency: An International Comparison," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(3), pages 356-383, September.
    9. Afonso, António & Tovar Jalles, João & Venâncio, Ana, 2024. "Fiscal decentralization and public sector efficiency: Do natural disasters matter?," Economic Modelling, Elsevier, vol. 137(C).
    10. António Afonso & José Alves & Najat Bazah, 2024. "Public Sector Efficiency and the Functions of the Government," Working Papers REM 2024/0357, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    11. António Afonso & José Alves & Najat Bazah, 2024. "Public Sector Efficiency and the Functions of the Government," Working Papers REM 2024/0357, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    12. Lucas Menescal & José Alves, 2023. "Tax Structure and Public Sector Efficiency: New Evidence for Developing Countries," CESifo Working Paper Series 10726, CESifo.
    13. António Afonso & Ana Patricia Montes & José M. Domínguez, 2024. "Measuring Tax Burden Efficiency in OECD Countries: An International Comparison," CESifo Working Paper Series 11333, CESifo.
    14. Janne Tukiainen & Sebastian Blesse & Albrecht Bohne & Leonardo M. Giuffrida & Jan Jäässkeläinen & Ari Luukinen & Antti Sieppi, 2021. "What Are the Priorities of Bureaucrats? Evidence from Conjoint Experiments with Procurement Officials," EconPol Working Paper 63, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    15. Woldu, Gabriel Temesgen & Szakálné Kanó, Izabella, 2023. "Macroeconomic effects of fiscal consolidation on economic activity in SSA countries," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    16. António Afonso & José Alves & João Tovar Jalles, 2022. "To consolidate or not to consolidate? A multi-step analysis to assess needed fiscal sustainability," International Economics, CEPII research center, issue 172, pages 106-123.
    17. Azar Dufrechou, Paola, 2016. "The efficiency of public education spending in Latin America: A comparison to high-income countries," International Journal of Educational Development, Elsevier, vol. 49(C), pages 188-203.
    18. Ant—nio Afonso & João Tovar Jalles & Ana Venâncio, 2023. "Government spending efficiency, measurement and applications: A cross-country efficiency dataset," Chapters, in: António Afonso & João Tovar Jalles & Ana Venâncio (ed.), Handbook on Public Sector Efficiency, chapter 3, pages 44-71, Edward Elgar Publishing.
    19. Hyeri Choi & Min Jae Park, 2019. "Evaluating the Efficiency of Governmental Excellence for Social Progress: Focusing on Low- and Lower-Middle-Income Countries," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 141(1), pages 111-130, January.
    20. Tumaniants, Karen A. (Туманянц, Карэн) & Sesina, Julia E. (Сесина, Юлия), 2017. "Social Expenditures of Russian Regions in Terms of “Input-Output” [Расходы На Социальную Политику Российских Регионов В Координатах «Затраты — Результат»]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 128-149, October.

    More about this item

    Keywords

    fiscal consolidation episodes; government spending efficiency; panel data; OECD;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_9761. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.