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Title: Fiscal consolidation and financial reforms
Authors: Agnello, Luca
Castro, Vitor
Jalles, Joao Tovar
Sousa, Ricardo M.
Keywords: Fiscal consolidation
Financial reforms
Macroeconomic determinants
Rare events logit model
Issue Date: 2015
Publisher: © Taylor & Francis
Citation: AGNELLO, L. ... et al, 2015. Fiscal consolidation and financial reforms. Applied Economics, 47 (34-35), pp. 3740-3755.
Abstract: 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.
Description: 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.
Sponsor: 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)’.
Version: Accepted for publication
DOI: 10.1080/00036846.2015.1021457
URI: https://dspace.lboro.ac.uk/2134/25016
Publisher Link: http://dx.doi.org/10.1080/00036846.2015.1021457
ISSN: 0003-6846
Appears in Collections:Published Articles (Economics)

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