For every sample period, three estimation approaches are used – ordinary least squares, ordinary least squares excluding Greece from the sample, and robust regressions. The estimated coefficient on the change in the cyclically adjusted primary balance ranges between -0.7 and -1.4, and is statistically significant in 8 of the 12 estimated regressions. When Greece is excluded, the coefficient ranges between -0.7 and -0.8. Trading partner growth interaction with the exports share is positive and significant in 9 out of 12 specifications. Pre-crisis growth is positively connected with growth and significantly so in two of the specifications. Real interest levels display the expected negative sign but also for the most part aren’t statistically significant. The change in the true effective exchange rate isn’t significantly linked to growth in these estimations.

Finally, we estimate a battery of multiple regressions in the spirit of the ‘extreme bounds analysis made popular by Levine and Renelt (1992) where the change in the cyclically adjusted primary balance is always included on the proper hand side, together with all possible combinations of the variables from the list above. A ‘robust’ empirical association (one which passes the extreme bounds analysis test) emerges between fiscal adjustment and economic growth only when one targets 2009-14 and if one includes Greece in the sample of countries. In every other cases (2009-14 robust regressions, 2009-14 ordinary least squares excluding Greece, 2007-14 robust regressions, and 2007-14 ordinary least squares), the extreme bounds analysis concludes that the empirical association between fiscal adjustment and economic growth is ‘fragile’.

## References

Blanchard, O, G Dell’Ariccia, and P Mauro (2013), “Rethinking Macroeconomic Policy II: Getting Granular”, IMF Staff Discussion Note 13/03, Washington: International Monetary Fund.

Levine, R, and D Renelt (1992), “A Sensitivity Analysis of Cross-Country Growth Regressions”, American Economic Review 82(4): 942-63, September.

Mauro, P, and J Zilinsky (2015), “Fiscal Tightening and Economic Growth: Exploring Cross-Country Correlations”, Policy Brief 15-15, Peterson Institute for International Economics, Washington DC USA.

Mineshima, A, M Poplawski-Ribeiro, and A Weber (2014), “Size of Fiscal Multipliers”, in C Cottarelli, P Gerson, and A Senhadji (ed.), Post-Crisis Fiscal Policy, Cambridge, MA: MIT Press.

## Footnotes

1 For a survey, see Blanchard et al. (2013), Mineshima, Poplawski-Ribeiro, and Weber (2014), and references therein. Generally, such attempts aren’t fully convincing or inapplicable to the knowledge of the global crisis, where fiscal policy has obviously been influenced by the necessity to boost economic growth or by the adverse impact of the growth decline on countries’ capability to finance potential fiscal stimulus.