Program > Papers by author > Leigh Daniel

Macroeconomic Effects of Fiscal Consolidation: New Narrative Evidence from Latin America and the Caribbean
Yan Carrière-Swallow  1@  , Antonio David  1@  , Daniel Leigh  1@  
1 : International Monetary Fund  (IMF)
700 19th Street NW, Washington, DC 20431 -  United States

This paper estimates the effects of fiscal consolidation on economic activity based on a new narrative dataset for 14 countries in Latin America and the Caribbean (LAC). Following a Romer and Romer identification approach, we examine contemporaneous policy documents to identify changes in fiscal policy motivated by a desire to reduce the budget deficit and not by responding to prospective economic conditions. We find that a fiscal consolidation of 1 percent of GDP reduces real GDP by, on average, 0.9 percent in two years. The estimated effects are close to those we find for advanced economies based on a comparable narrative dataset. We also find a strong LAC "twin deficits" relation, with a 1 percent of GDP fiscal consolidation raising the current account balance by, on average, 0.8 percent of GDP.


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