The Rewards of Fiscal Consolidation: Sovereign Spreads and Confidence Effects

This paper investigates the effects of fiscal consolidation announcements on sovereignspreads in a panel of 21 emerging market economies during 2000-18. We construct anovel dataset using a global news database to identify the precise announcement date offiscal consolidation actions. Our results show that sovereign spreads decline significantlyfollowing news that austerity measures have been approved by the legislature (congress orparliament), in periods of high sovereign spreads or in countries