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Fiscal consolidation: a tale of two tiers

Darby, J. and Muscatelli, A.V. and Roy, G. (2005) Fiscal consolidation: a tale of two tiers. Fiscal Studies, 26 (2). pp. 169-196. ISSN 0143-5671

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Abstract

This paper contributes to the established literature on fiscal consolidations by investigating the distinct behaviour of central and sub-central tiers of government during general government consolidation attempts. In the light of different degrees of decentralisation across OECD countries, and the different responsibilities devolved to sub-central tiers, we believe that this approach offers an illuminating insight into the analysis of fiscal consolidations and their success. We show that the involvement of the sub-central tiers of government is crucial to achieving cuts in expenditure, particularly in relation to the overall size of the government wage bill. In addition, central governments appear to exert a strong influence on the expenditure of sub-central tiers through their grant allocations, and control of these allocations appears to have a considerable impact upon the overall success of consolidation attempts. Finally, we demonstrate that there is a skewness in cuts towards sub-central capital expenditure both when central governments cut grant allocations and when sub-central governments engage in lone consolidation attempts.

Item type: Article
ID code: 3908
Keywords: fiscal studies, monetary policy, economics, government spending, Economic History and Conditions, Economic Theory
Subjects: Social Sciences > Economic History and Conditions
Social Sciences > Economic Theory
Department: Strathclyde Business School > Economics
Related URLs:
    Depositing user: Strathprints Administrator
    Date Deposited: 23 Aug 2007
    Last modified: 16 Jul 2013 18:44
    URI: http://strathprints.strath.ac.uk/id/eprint/3908

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