Effects of Fiscal Consolidation in the Czech Republic

This paper uses the IMF’s Global Integrated Monetary and Fiscal Model (GIMF) to assess the impact of fiscal consolidation on the Czech economy. Its contribution is threefold. First, it provides estimates of dynamic fiscal multipliers for a variety of fiscal instruments (tax and expenditure), consolidation durations, assumptions about credibility, and monetary policy responses. Second, the paper evaluates the impact on the economy of tightening measures envisaged in the 2011 budget. Third, the paper considers alternative packages for consolidation beyond 2011 to achieve the government’s balanced budget target by 2016 and identifies which forms of adjustment are more "growth-friendly".Fiscal consolidation;Fiscal policy;Budgets;fiscal rule, aggregate demand, labor income, consumption tax, fiscal multipliers, fiscal balance, capital income, consumption expenditure, fiscal instruments, fiscal instrument, real interest rate, fiscal authority, tax revenue, consumption goods, fiscal adjustment, consumption taxes, government spending, government expenditure, fiscal multiplier, general equilibrium, fiscal impulse, taxation, fiscal tightening, fiscal stimulus, government consumption expenditure, budget constraint, fiscal shock, private consumption, fiscal deficit, expenditure cuts, government deficit, fiscal deficits, taxes on labor, budget consolidation, consumption decision, capital expenditures, consumption tax revenue, increase in consumption, fiscal model, fiscal position, total consumption, marginal propensity to consume, reduction in consumption, investment spending, public debt, tax change, current income, demand for investment goods, account deficits, household budget, consumption spending, fiscal authorities, budget balances, national budget, private consumption expenditure, fiscal measures, fiscal accounts, fiscal implications, fiscal surplus, consumption remains, budget deficit, disposable income, fiscal policy rule, reduction in transfers, structural fiscal, lifetime income, business cycles, public finances, consumption behavior, fiscal analysis, fiscal shocks, budget balance, revenue adjustment, government budget, household income, fiscal policy rules, household consumption, gross domestic product, consumption expenditures, fiscal stimuli, tax income