Total factor productivity (TFP) and fiscal consolidation: how harmful is austerity?

Article

Bardaka, I., Bournakis, I. and Kaplanoglou, G. 2021. Total factor productivity (TFP) and fiscal consolidation: how harmful is austerity? Economic Modelling. 94, pp. 908-922. https://doi.org/10.1016/j.econmod.2020.02.032
TypeArticle
TitleTotal factor productivity (TFP) and fiscal consolidation: how harmful is austerity?
AuthorsBardaka, I., Bournakis, I. and Kaplanoglou, G.
Abstract

Departing from the expansionary austerity literature, this study assesses empirically whether fiscal consolidation propagates changes in the supply side of the economy that can potentially influence total factor productivity (TFP). Using a panel data set of 26 OECD countries over the period 1980–2016 and employing panel vector auto-regressive and panel co-integration techniques, we present evidence of both short-run and long-run negative effects of fiscal consolidation on TFP. The short-run impact is disproportionately more damaging for the TFP of low debt countries, while, contrary to the expansionary austerity thesis, our empirical results would advise against spending-driven fiscal consolidation, since such consolidation undermines capacity, due to the importance of government spending in shaping productive capital. Our results have serious policy implications for the implementation and design of fiscal adjustment programmes.

Sustainable Development Goals8 Decent work and economic growth
11 Sustainable cities and communities
16 Peace, justice and strong institutions
Middlesex University ThemeCreativity, Culture & Enterprise
Sustainability
PublisherElsevier
JournalEconomic Modelling
ISSN0264-9993
Electronic1873-6122
Publication dates
Online19 Feb 2020
Print31 Jan 2021
Publication process dates
Submitted07 Jun 2019
Accepted16 Feb 2020
Deposited02 Mar 2020
Output statusPublished
Accepted author manuscript
License
File Access Level
Open
Copyright Statement

© 2020. This manuscript version is made available under the CC-BY-NC-ND 4.0 license.

Digital Object Identifier (DOI)https://doi.org/10.1016/j.econmod.2020.02.032
LanguageEnglish
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