Stabilization programmes and fiscal adjustmnet: the case of small open european economies

Abstract

In the 1980s debt had grown rapidly in most European countries. Many governments started to
pursue stabilization policies to remove the danger of debt explosion. However, the design of stabilization
policies in heavily indebted economies is extremely difficult. This paper contrasts the stabilization programmes
of these countries and draws out preliminary conclusions for the design of such programmes in
small open economies. Programmes relying on gevernment expenditure reduction, seem to be more
successful than those that rely on revenue increases. The Danish and the Second Irish Stabilization are the
main examples that support this conclusion.