engleski

Central or sub-central Fiscal consolidation: What is important for regional inequalities

Although there are relatively large number of papers investigating the impact of fiscal consolidation on different aspect of economy (e.g. Castro, 2007, 2011, Heim, 2010a, 2010b, Agnello et al, 2016) this paper represent unique attempt of investigating the effects of fiscal consolidation implemented on central and sub-central level on regional inequalities. Therefore, the aim of the paper is to test the hypothesis that implementation of fiscal consolidation on central level has different effects on regional inequalities, then implementation on sub-central level. Therefore, we explore the impact of fiscal consolidation on central and sub-central level on regional inequalities among EU member countries for period 1995-2009. Two groups of variables are particularly important for this study: measure of fiscal consolidation and difference between central and sub-central component of the fiscal consolidation. Due to fact that recent literature recognizes problems with using cyclically-adjusted primary budget balance (CAPB) as a measure for fiscal consolidation we extend regional empirical literature by using a new database of fiscal consolidation, introduced by Devries et al. (2011), that successfully tackles all this issues. For measuring the central and sub-central component of the fiscal consolidation we use the share of the central and sub-central spending and revenues in total public spending and revenues for the years when the fiscal consolidation has been realized. The results indicate that the structure of fiscal consolidation (led by implementation on national or sub-national level) differently influences regional inequalities. Finally, the paper highlights that fiscal consolidation is not only the matter of the public debt levels or economic growth, but also important regional issue.

regional inequalities, sub-central fiscal consolidation, central fiscal consolidation, European Union

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