Assessing the Success of Fiscal Adjustment – A Political Economic Approach

Abstract

Over the past few years, the world economy was characterised by a period of liquidity, which allowed the financing of public debt under more favourable conditions. Nevertheless, the level of actual debt remains to be reduced in order not to limit the fiscal scope. However, fiscal adjustment may have significant macroeconomic, social and political economic costs. The study explores the success of fiscal consolidation in a political economy context, revealing its most important relationships. The success criterion(s) chosen for the analyses can considerably influence the judgment of success and may also induce the postponement/launch of a future consolidation. In the second half of the study, the success of the adjustment is briefl y examined through the European Union case study.