The Impact of Fiscal Consolidation Programs on Private Consumption Expenditures: Panel Data Analysis for PIIGS Countries

As a result of the deterioration of the budget balance for various reasons, fiscal consolidation programs are implemented to restore the balance. Fiscal consolidation is a contractionary fiscal policy applied to reduce public deficits and debt stock. This study revealed the effect of fiscal consolidation programs on private consumption expenditures by panel data analysis including PIIGS (Portugal, Italy, Ireland, Greece, Spain) countries based on the 1995-2020 data. In the light of the findings, it has been seen that fiscal consolidation programs have different effects between countries. While Ireland and Italy supported the expansionary fiscal contraction hypothesis and revealed findings, results supporting Keynesian effects were reached in Greece. It has been observed that the government programs implemented due to the Covid-19 epidemic, which was experienced in 2019-2020, one of the exemplary years and included in the study as a dummy variable, positively affected private consumption expenditures in Portugal, Italy and Ireland. In this case, the expansionary fiscal contraction hypothesis in fiscal consolidation periods; shows that the Traditional Keynesian model is valid during the expansion periods.