Abstract
This paper investigates the role of hysteresis in the long-term transmission of consolidations in a panel of 17 OECD countries. The evidence supports that the hysteresis of the labour market is the main driver of consolidations’ long-term effects: an increase in the rigidity of the labour market exacerbates and prolongs the contraction following tax-based consolidations, while it mutes the expansion following expenditure-based consolidations. In contrast, the response of productivity is irrelevant to the presence of the long-term scars.
Original language | English |
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Journal | Empirical Economics |
Volume | 66 |
Issue number | 1 |
Pages (from-to) | 327-368 |
Number of pages | 42 |
ISSN | 0377-7332 |
DOIs | |
Publication status | Published - Jan 2024 |
Bibliographical note
Published online: 22 June 2023.Keywords
- Consolidations
- Fiscal policy
- Hysteresis
- Labour market rigidity
- Potential growth