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Date of Award
Bachelor of Science
Prof. Miguel Ramirez
This study employs the new database of fiscal consolidations developed by David and Leigh (2018) to estimate the impact of different fiscal austerity plans on twelve Central and Latin American economies. Fiscal consolidations are modeled using a panel vector-autoregression (VAR) approach in accordance with previous studies on fiscal multipliers. In contrast with the existing literature regarding OECD countries, we find that tax-based austerity plans are significantly less contractionary than expenditure-based plans, and show a tendency to boost consumption. More specifically, a 1% size tax-based plan is associated with a meager loss in the growth of real per-capita output ranging between 0.1% and 0.2% of GDP. There is also evidence for opposing effects in the fiscal multipliers, with changes in expenditure affecting per-capita output growth negatively, as opposed to changes in taxes, which have a significantly positive impact.
Pellegrini, Elena, "Tax Hikes vs. Spending Cuts: A VAR Model of Central and Latin America". Senior Theses, Trinity College, Hartford, CT 2020.
Trinity College Digital Repository, https://digitalrepository.trincoll.edu/theses/1008
Senior thesis completed at Trinity College, Hartford CT for the degree of Bachelor of Science in Economics, Full text is available to the Trinity Campus only.