Are fiscal consolidation episodes helpful for public sector efficiency?

ABSTRACT

We assess the consequences of fiscal consolidation episodes on public sector efficiency (scores) for 35 OECD countries for the 2007–2020 period. We find that fiscal consolidations improve public sector efficiency and results are robust across efficiency models. Moreover, peripheral euro-area economies and economies with debt-to-GDP ratios between 60% and 90% are those whose public sector efficiency scores improve more when fiscal consolidation episodes occur. The evidence that fiscal consolidations enhance spending efficiency is an additional argument for fiscal consolidations, from a policy perspective.

KEYWORDS:

• Fiscal consolidation episodes
• government spending efficiency
• panel data
• OECD

JEL CLASSIFICATION:

• C23
• D61
• H21
• E62
• H63

Acknowledgement

We thank the editor and three anonymous referees for very useful comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Australia (AUS), Austria (AUT), Belgium (BEL), Canada (CAN), Chile (CHL), Colombia (COL), Czech Republic (CZE), Denmark (DNK), Finland (FIN), France (FRA), Germany (DEU), Greece (GRC), Hungary (HUN), Iceland (ISL), Ireland (IRL), Israel (ISR), Italy (ITA), Japan (JPN), Latvia (LVA), Lithuania (LTU), Luxembourg (LUX), the Netherlands (NLD), New Zealand (NZL), Norway (NOR), Poland (POL), Portugal (PRT), Slovakia (SVK), Slovenia (SVN), South Korea (KOR), Spain (ESP), Sweden (SWE), Switzerland (CHE), Turkey (TUR), the United Kingdom (GBR) and the United States (USA).

Additional information

Funding

This work was supported by the FCT (Fundação para a Ciência e a Tecnologia) [grant number UIDB/05069/2020]. The opinions expressed herein are those of the authors and do not necessarily reflect those of the authors’ employers. Any remaining errors are the authors’ sole responsibility.