We investigate this possibility using a two-stage-least-squares approach: the first stage involves a regression of actual fiscal consolidation on the forecast of fiscal consolidation; and the second stage is a regression of the growth forecast error on the instrumented values of actual fiscal consolidation obtained in the first stage. As Table 3 reports, the first stage is strong, and the slope coefficient is (t-statistic = ). This coefficient close to 1 indicates that, on average, actual consolidation was neither smaller nor larger than expected. 27 The second stage indicates that a 1 percent of GDP fiscal consolidation is associated.
