Abstract

The paper analyses and discusses the relationship among fiscal contractions, permanent improvements in public finances and short-run macroeconomic performance. In the last decade, new theoretical approaches have been proposed from a lively literature and many studies tried to support theory with a clear empirical evidence. The main idea is that fiscal consolidations that concentrate on the expenditure side and unfold over a relatively long time span are more likely to succeed in reducing the public debt ratio than tax-based or shorter adjustments. Furthermore, macroeconomic consequences are strictly related to fiscal successfulness: only successful contractions do not trigger economic slowdowns. The policy implications of this new approach are here discussed and investigated with respect to the empirical evidence.