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Trimming the Sails
The comparative political economy of expansionary fiscal consolidations

István Benczes, Corvinus University, Budapest

"A concise, well-structured scholarly work that offers rich, albeit careful analysis with balanced views on the diverse literature. The monograph pays special attention to critically assessing the underlying theories and marshals solid evidence on the growing relevance of non-Keynesian effects in markets both East and West. The work sheds new light, long sought after, on why there has been only slight progress made and on why repeated failures characterized the Hungarian fiscal sece." - The Journal of Comparative Economic Studies

"According to conventional wisdom, fiscal contractions come with economic and political costs. Reduction in deficit is widely believed to have a negative short-term effect on economic growth and employment and, for that reason, to be politically unpopular. István Benczes's study is the first book-length treatment of the issue. It combines a critical survey of the literature with a quantitative analysis of fiscal adjustment in the pre-enlargement EU and an in-depth case study of Hungary, the EU country with the highest fiscal deficit in 2006." - Acta Oeconomica

Fiscal consolidation has significant short term costs which dampen economic growth. This widely shared consensus in literature on political economy makes fiscal adjustment highly unpopular. Benczes conducts a systematic analysis to find out whether it is possible to have fiscal consolidation and experience economic growth even in the short run.

The book provides a clear, multidisciplinary and systematic analysis of the relatively new concept of the so-called expansionary fiscal consolidations. This concept suggests that fiscal adjustment should not be in trade-off with economic growth if certain conditions are met. But why do only a few countries and only at certain times experience the expansionary effects, while others not at all? The necessary institutional conditions and circumstances have been totally neglected in the literature, or analyzed only partially at best.

Having evolved a theoretical framework, it is tested on a difficult case: Hungary, which has had the highest deficit in the European Union. The main question was whether Hungary has a chance to experience short term growth effects in times of adjustment.

"István Benczes, besides giving a very comprehensive and critical review of the literature, has done an excellent job in pushing the limits of research toward new territories. A most welcome novelty of his work is the investigation of the role of the financial system in the examination of non-Keynesian effects." - György Szapáry, Former Vice Governor, Hungarian National Bank

"This book is an exciting contribution to the comparative political economy of expansive fiscal consolidations and their preconditions. Eminently suited for classroom use and as a reference volume." - László Csaba, Member of the Hungarian Academy of Sciences and former President, European Association for Comparative Economic Studies


List of Figures List of Tables Acknowledgements 1. Introduction PART ONE: A critical Assessment of the Concept of Non-Keynesian Effects 2. Stylized Facts of EU Countries’ Major Fiscal Episodes 3. An Expectational View of Fiscal Policy: A Non-Linear Approach to Fiscal Consolidation 4. The Composition of Adjustment and the Structure of Labor Markets: A Linear Approach to Fiscal Consolidation PART TWO: Testing the Institutional Conditions of Non-Keynesian Effects in Hungary 5. From Goulash Communism To Neo-Kadarism: An Overview 6. Financial Intermediation in Hungary—a Comparative Perspective 7. The Structure of the Hungarian General Budget—a Decompositional Analysis 8. The Labor Market and Wage Bargaining in Hungary—the (Ir)relevance of a Social Pact 9. Conclusion References Appendices Index

273 pages
ISBN 978-963-9776-01-2 cloth $44.95 / €34.00 / £28.00