Working Paper

Are Fiscal Consolidation Episodes Helpful for Public Sector Efficiency?

António Afonso, José Alves
CESifo, Munich, 2022

CESifo Working Paper No. 9761

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.

CESifo Category
Public Choice
Fiscal Policy, Macroeconomics and Growth
Keywords: fiscal consolidation episodes, government spending efficiency, panel data, OECD
JEL Classification: C230, D610, H210, E620, H630