Government spending adjustment: the OECD since the 1990s

Zvi Hercowitz, Michel Strawczynski

Research output: Working paper/preprintDiscussion paper


This paper investigates the drastic reduction in public spending in OECD countries during the 1990s. Using a panel data set of 18 countries, we find this adjustment to be a general OECD development, beginning in 1994, and that participation in the
Maastricht Treaty or in the Stability and Growth Pact does not introduce additional effects. In the long run, this adjustment is estimated to reduce the ratio of primary government spending to output by about 4 percentage points. There is no evidence of
differential adjustment in expansions or recessions. We also find that declines in interest payments on public debt are followed by increases in primary expenditures by about the same amount. The econometric framework makes it possible to compute the
long-run ratios of government expenditures to GDP in the 18 OECD countries in the sample.
Original languageEnglish
Place of PublicationRome
PublisherBanca d'Italia Research Department
Number of pages18
StatePublished - 2005

Publication series

NameDiscussion paper series / Bank of Israel Research Department
PublisherBank of Israel
Volumeno. 2005.9

Bibliographical note

Previously published as discussion paper in:
Discussion paper series /
Bank of Israel Research Department
Publisher name: Bank of Israel
Volume: no. 2005.9
32 pages


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