Countries that increase the structural budget balance the most have experienced the slowest growth. Here is the scatter plot for the 2008-2012 period.
Figure 1: Average growth of real GDP (in domestic currency) versus change in structural budget balance, 2008-2012. 0.10 = 10%. Sample: Advanced economies ex.-East Asia, by IMF definition. Source: IMF, WEO (April 2013) database.The slope coefficient from an OLS regression is -1.2, with a t-statistic of -3.4, using White heteroskedasticity consistent standard errors. The adjusted R2 is 0.41. Dropping Greece leaves intact a negative, statistically significant relationship.
This piece is cross-posted from Econbrowser with permission.