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Fiscal consolidation and financial reforms

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journal contribution
posted on 17.05.2017, 09:39 by Luca Agnello, Vitor CastroVitor Castro, Joao Tovar Jalles, Ricardo M. Sousa
We use a rare events logistic regression model as well as traditional probit and logit models to investigate the impact of fiscal consolidation on the likelihood of financial reforms for a panel of 17 countries over the period 1980–2005. We show that large austerity plans, mainly implemented through spending cuts rather than tax hikes, promote financial reforms. By considering reforms affecting specific areas of the financial sector, we find that the banking sector reforms and domestic finance reforms are more likely to occur when fiscal adjustments are put in place. Interestingly, while banking sector reforms are mainly prompted during periods of tax-driven consolidations, spending cuts driven consolidation packages seem to propel the implementation of domestic finance reforms. Finally, we show that higher inflation, lower degree of trade openness, a deterioration of financial conditions and, to some extent, a fall in the degree of competitiveness enhance the probability of financial reforms.

Funding

Castro and Sousa acknowledge that this work has been financed by the Operational Programme for Competitiveness Factors – COMPETE and by Fiscal consolidation and financial reforms 3753 National Funds through the FCT – Portuguese Foundation for Science and Technology within the remit of the project ‘FCOMP-01-0124-FEDER-037268 (PEst-C/EGE/UI3182/2013)’.

History

School

  • Business and Economics

Department

  • Economics

Published in

Applied Economics

Volume

47

Issue

34-35

Pages

3740 - 3755

Citation

AGNELLO, L. ... et al, 2015. Fiscal consolidation and financial reforms. Applied Economics, 47 (34-35), pp. 3740-3755.

Publisher

© Taylor & Francis

Version

AM (Accepted Manuscript)

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Publication date

2015

Notes

This is an Accepted Manuscript of an article published by Taylor & Francis in Applied Economics on 11th March 2015, available online: http://www.tandfonline.com/10.1080/00036846.2015.1021457.

ISSN

0003-6846

eISSN

1466-4283

Language

en