The Macroeconomic Effects of Fiscal Consolidation in Emerging Economies: Evidence from Latin America

Download or read book The Macroeconomic Effects of Fiscal Consolidation in Emerging Economies: Evidence from Latin America written by Mr.Yan Carriere-Swallow and published by International Monetary Fund. This book was released on 2018-06-13 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate the short-term effects of fiscal consolidation on economic activity in 14 countries in Latin America and the Caribbean. We examine contemporaneous policy documents to identify changes in fiscal policy motivated by a desire to reduce the budget deficit and not by responding to prospective economic conditions. Based on this narrative dataset, our estimates suggest that fiscal consolidation has contractionary effects on GDP, consistent with a multiplier of 0.9. We find these effects to be close to those in OECD countries based on a similarly constructed dataset (Devries and others, 2011). We also find similar estimation results for the two groups of economies for the effect of fiscal consolidation on the external current account balance, providing support for the twin deficits hypothesis.