Fiscal Reforms, Long-Term Growth and Income Inequality

47 Pages Posted: 9 Aug 2017

See all articles by Santiago Acosta Ormaechea

Santiago Acosta Ormaechea

International Monetary Fund (IMF)

Takuji Komatsuzaki

International Monetary Fund (IMF)

Carolina Correa-Caro

Universidad Central - Economics Department

Date Written: June 2017

Abstract

We estimate the effects on growth of nine fiscal reform episodes in seven high-income countries using the Synthetic Control Method. These episodes are selected using an indicator-based approach applied to the evaluation of growth-friendly fiscal reforms during 1975-2010. We find that in reform countries the annual growth rate of real GDP was on average about 1 percentage point above their synthetic units 10 years after each respective reform. Moreover, countries which were initially less developed seemed to experience a larger growth impact after their reforms. Results are broadly robust to controlling for structural reforms on business regulation, financial market, labor market, and legal and product markets, which may also affect growth. Our findings also suggest that inequality is not affected by the growth-friendly fiscal reforms analyzed in this paper.

Keywords: Fiscal policy, Synthetic Control Method, Structural Reform, General, Comparative Studies of Countries

JEL Classification: E62, O40, O57

Suggested Citation

Acosta Ormaechea, Santiago and Komatsuzaki, Takuji and Correa-Caro, Carolina, Fiscal Reforms, Long-Term Growth and Income Inequality (June 2017). IMF Working Paper No. 17/145, Available at SSRN: https://ssrn.com/abstract=3014055

Santiago Acosta Ormaechea (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Takuji Komatsuzaki

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Carolina Correa-Caro

Universidad Central - Economics Department ( email )

Bogotá
Colombia

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