The expected impact of cutting down government expenditure on fiscal deficits

What is it about?

This article seeks to explore whether a reduction in the government expenditure would necessarily reduce the fiscal deficit to GDP ratio or not. Based on available empirical evidence from 175 countries for 15 years (from 2000 to 2014), the authors argue that a cut in the government expenditure might paradoxically lead to a higher fiscal deficit to GDP ratio for about half of the countries around the globe.

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Why is it important?

Based on available empirical evidence from 175 countries for 15 years (from 2000 to 2014), the authors argue that a cut in the government expenditure might paradoxically lead to a higher fiscal deficit to GDP ratio for about half of the countries around the globe. This study tries to argue that an improvement in the value of fiscal multiplier and that in the tax buoyancy can be the policy alternatives to various painful austerity measures.