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Trimming the Sails

Trimming the Sails: The Comparative Political Economy of Expansionary Fiscal Consolidations

István Benczes
Copyright Date: 2007
Pages: 237
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  • Book Info
    Trimming the Sails
    Book Description:

    The book provides a clear, multidisciplinary and systematic analysis of the relatively new concept of the so-called expansionary fiscal consolidations. This concept suggests that fiscal adjustment should not be in trade-off with economic growth if certain conditions are met. But why do only a few countries and only at certain times experience the expansionary effects, while others not at all? The necessary institutional conditions and circumstances have been totally neglected in the literature, or analyzed only partially at best.

    eISBN: 978-615-5211-32-4
    Subjects: Political Science
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Table of Contents

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  1. Front Matter (pp. i-vi)
  2. Table of Contents (pp. vii-x)
  3. List of Figures (pp. xi-xii)
  4. List of Tables (pp. xiii-xiv)
  5. Acknowledgements (pp. xv-xvi)
  6. CHAPTER 1 Introduction (pp. 1-12)

    The theory and practice of fiscal policy has become one of the most often debated areas of research not just in modern macroeconomics, but also in political economy and political sciences. The fact that the state centralizes often half of the national income naturally indicates that fiscal policy exerts its direct and indirect influence in almost every segment of our lives. In principle, it can produce public goods, run state-owned companies, intervene in the future prospects of families through transfers or public wages, etc. By redistributing the national income, fiscal policy and those in charge of conducting it have an...

  7. PART ONE A Critical Assessment of the Concept of Non-Keynesian Effects
    • CHAPTER 2 Stylized Facts of EU Countries’ Major Fiscal Episodes (pp. 15-29)

      The theoretical and empirical studies on expansionary fiscal consolidation are relatively recent and accordingly the applied framework, concepts and methodologies vary substantially. In their most basic form, the empirical studies elaborating on the occurrence of non-Keynesian effects draw inferences from case studies. The main empirical evidences are then tested against a large sample of countries. Nevertheless, the main conclusions of the case studies should be considered with a critical mind since these results always refer to specific countries with specific situations in a given—usually exceptional—time.

      According to the standard textbook approach,¹ fiscal consolidation has, by and large, two...

    • CHAPTER 3 An Expectational View of Fiscal Policy: A Non-Linear Approach to Fiscal Consolidation (pp. 31-73)

      Fiscal consolidation delivers benefits in the medium and especially the long term, thereby providing a sustainable path for economic development—a consensus view widely shared in the economic profession. This belief is reflected in the Maaastricht Treaty of the European Community as well, for instance. By deepening the European integration process, the godfathers of the treaty declared, in Article 2 that the ultimate goal of Member States and the Community shall be to maintain an economic environment with sustainable and non-inflationary growth. The Stability and Growth Pact provided the details how this aim could be fulfilled, by requiring the governments...

    • CHAPTER 4 The Composition of Adjustment and the Structure of Labor Markets: A Linear Approach to Fiscal Consolidation (pp. 75-119)

      Chapter 3 gave a comprehensive account of non-Keynesian effects but this might prove to be far from satisfactory from an economic policy viewpoint. Although consumption effects can be robust enough in some cases, they are effective only in the very short term. Moreover, they are conditioned on the coincidence of many initial and facilitating factors without which it is rather unlikely that consumers would increase their consumption in a time of fiscal contraction. As it has been shown in the previous chapter, among these factors liquidity constraint can be a particularly important obstacle to the emergence of non-Keynesian effects. Moreover,...

  8. PART TWO Testing the Institutional Conditions of Non-Keynesian Effects in Hungary
    • CHAPTER 5 Financial Intermediation in Hungary: A Comparative Perspective (pp. 123-151)

      Although understanding the mechanisms and identifying the main triggering and facilitating factors which contribute to the possible emergence of non-Keynesian effects is a serious challenge in itself, the book wishes to take a wider perspective and—applying the framework that has been worked out in Part One—will test the relevance of the identified institutional conditions in a particular country. The critical assessment of the theories on non-Keynesian effects and the generalizations drawn from the statistical analyses of the old member states of the EU provide the opportunity to raise the following question: is there a chance for Hungary, a...

    • CHAPTER 6 The Expenditure Side of the Hungarian General Government: A Decompositional Analysis (pp. 153-192)

      From the late eighties onwards, the study of the macroeconomic consequences of fiscal consolidation has become a popular field in academic research. This new stream of the literature does not only provide a positive study but also embarks on the normative research of fiscal adjustment. In line with the main findings of Chapter 4, there seems to be a widely shared consensus emerging in the developed part of the world, namely that the quality of adjustmentdoesmatter, or to be precise: it is not the size of adjustment per se that determines success in the reform of public finances...

    • CHAPTER 7 Labor Market Structure and Wage Bargaining in Hungary: The (Ir)relevance of a Social Pact (pp. 193-210)

      The decompositional analysis of Chapter 6 has documented that the deterioration of fiscal performance after 2000 can be traced back basically to two politically sensitive items of the general government: the public sector wage bill and household transfers. In Chapter 4, it has been shown that without the reduction of these two items, there is hardly any real chance for the occurrence of non-Keynesian effects in principle. Although the cutback of politically sensitive items can be rational from a purely economic point of view, it may be highly unrealistic from a political perspective. As we have seen in Chapter 4,...

    • CHAPTER 8 Conclusion (pp. 211-228)

      The main objective of the book was to systematically analyze whether fiscal adjustment necessarily brings about only costs in the short run or is there a chance to experience (accelerated) economic growth even in the short run and thereby offset the costs of the consolidation. While the usual interpretation of the short-term effects of fiscal consolidation takes it as given that adjustment is always affiliated with costs and is therefore politically highly unpopular, introducing the puzzle ofexpansionary fiscal consolidationis not without reason. From the eighties onwards, a large number of industrialized countries embarked on wide-scale reform programs—targeting...

  9. References (pp. 229-242)
  10. Appendix 1 (pp. 243-245)
  11. Appendix 2 (pp. 246-247)
  12. Appendix 3 (pp. 248-249)
  13. Appendix 4 (pp. 250-250)
  14. Index (pp. 251-257)