Insights from 24 Fiscal Consolidations in Europe

Analysis of 24 historical European fiscal consolidations (2000-2019) reveals that expenditure-led strategies are more effective for deficit reduction and lead to a significant rebound in economic growth.

Key Takeaways

• 1.Expenditure-led fiscal consolidation is more effective and tends to support stronger economic growth after completion compared to revenue-led efforts.
• 2.Historical data from 2000-2019 identifies 24 episodes of significant consolidation, defined as an improvement of the primary balance by at least 3% of GDP over four years.
• 3.Spending restraint was the primary driver of successful consolidations, contributing an average reduction of 3.6% of GDP, while tax increases contributed only 0.1%.

Table of Contents

• EXPENDITURE-LED FISCAL CONSOLIDATION LOOKS EFFECTIVE AND GROWTH-SUPPORTIVE AFTERWARDS
• Reducing G for more growth

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