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 (http://dx.doi.org/10.1111/j.1475-5890.2005.00009.x)

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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.

ORCID iDs

Darby, J. ORCID logoORCID: https://orcid.org/0000-0003-4425-7222, Muscatelli, A.V. and Roy, G.;
CORE (COnnecting REpositories)