A1240
Title: Fiscal consolidations: Announcements and reality
Authors: Luca Sala - Bocconi University (Italy)
Roberto Perotti - Bocconi University (Italy) [presenting]
Abstract: A large literature finds that consolidations based on announcements of tax increases lead to declines in GDP, while consolidations based on announcements of expenditure cuts are associated with almost no change in GDP. The purpose is to study the response of actual (as opposed to announced) discretionary government spending and revenues, and find that the former does not decline in what are classified (on the basis of announcements) as "expenditure-based" consolidations, but does decline by a large amount in "tax-based" consolidations; actual discretionary revenues move little in both regimes. Thus, opposite conclusions to those implied by most of the recent literature are reached.
