How do financial crises influence public budget composition in the longer run?

The study will analyse the longer-run impact that financial crises exert on the composition of public expenditure and revenue. Recently various scholars have shown that financial crises are a main driving factor of increasing debt-to-GDP ratios since the end of the World War II. Prominent studies find that the surge in debt ratios is probably driven by shortfalls in public revenue after financial crises. However, from a policy perspective, the question which types of revenue and expenditure are hit most by financial crises is also important since the structure of public expenditure and revenue are known to be an important determinant of the long-run growth performance of a country. Using a comprehensive dataset for a broad sample of countries over the last 40 years and by applying a regression-based event study methodology we highlight financial crises as channel through which longer-lasting effects on public budget composition may occur. We evaluate and quantify these potential effects.