Is fiscal fatigue a threat to consolidation programmes?

Abstract

Building on a narrative approach to identify episodes of fiscal consolidation, data for a group of seventeen industrial countries over the period 1978–2009, and continuous-time duration models, we find evidence suggesting that the likelihood of a fiscal consolidation ending increases over time, but only for programmes that last fewer than six years. Additionally, fiscal consolidations tend to last longer in non-European than in European countries. Our results emphasize that chronic fiscal imbalances might lead to a vicious austerity cycle, while discipline in the behaviour of fiscal authorities is a means of achieving credible and shorter adjustment measures. Therefore, fiscal fatigue is likely to compromise the implementation and successfulness of fiscal consolidation programmes.