Government-Spending Adjustment: The OECD Since the Nineties

Hercowitz, Zvi; Strawczynski, Michel

doi:10.2139/ssrn.2028367

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Government-Spending Adjustment: The OECD Since the Nineties

18 Pages Posted: 25 Mar 2012

See all articles by Zvi Hercowitz

Zvi Hercowitz

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER)

Michel Strawczynski

Hebrew University of Jerusalem - Eliezer Kaplan School of Economics and Social Sciences; Hebrew University of Jerusalem _ Public Policy

Date Written: March 31, 2005

Abstract

This paper investigates the drastic reduction in public spending in OECD countries during the 1990s. Using a panel data set of 18 countries, we find this adjustment to be a general OECD development, beginning in 1994, and that participation in the Maastricht Treaty or in the Stability and Growth Pact does not introduce additional effects. In the long run, this adjustment is estimated to reduce the ratio of primary government spending to output by about 4 percentage points. There is no evidence of differential adjustment in expansions or recessions. We also find that declines in interest payments on public debt are followed by increases in primary expenditures by about the same amount. The econometric framework makes it possible to compute the long-run ratios of government expenditures to GDP in the 18 OECD countries in the sample.

Suggested Citation: Suggested Citation

Hercowitz, Zvi and Strawczynski, Michel, Government-Spending Adjustment: The OECD Since the Nineties (March 31, 2005). Available at SSRN: https://ssrn.com/abstract=2028367 or http://dx.doi.org/10.2139/ssrn.2028367