On the predictability of narrative fiscal adjustments

- DeVries et al. (2011) construct narrative series of tax- and spending-based fiscal adjustments.
- We find that adjustments based on spending cuts can be predicted from past macroeconomic fluctuations.
- The contractionary effects of spending-based adjustments vanish once we account for this source of endogeneity.

This paper shows that spending-based adjustments identified by DeVries et al. (2011) can be predicted on the basis of past output growth and other macroeconomic variables. Moreover, their contractionary effects vanish once we account for this source of endogeneity while tax-based consolidations remain contractionary.