Can Uncertainty Explain the Heterogeneous Output E/ects of Fiscal Adjustments? Madina Karamysheva  This Version: December 2016 Abstract Recent empirical evidence suggests that scal consolidations mainly based on tax hikes have a more recessionary impact on economic growth relative to those based on expenditure cuts. This paper evaluates the output e/ects of scal adjustment plans identied through the narrative approach. Plans are di/erent from shocks that are usually considered in the literature, since scal plans track more closely the dynamics of scal policy. I incorporate scal plans into a vector autoregression model to investigate the channels of transmission of scal consolidations. In addition to a direct e/ect of scal adjustment plans on output I explore two indirect e/ects. In particular, I investigate whether monetary policy or uncertainty could explain the heterogeneous output e/ects of scal adjustment plans. The evidence indicates that uncertainty increases following tax-based scal plans and decreases following expenditure-based scal plans. Monetary policy cannot fully explain this di/erence. Closing the monetary policy and uncertainty channels, allows to measure how much of di/erence in output e/ects of scal adjustment plans is due to each particular channel. It appears, that uncertainty channel is more important among the two. Keywords: scal plans, output, risk, uncertainty, monetary policy In this paper I analyze possible explanations of the heterogeneous output e/ects of scal adjustment plans. To reach this goal several steps are needed. The rst step is the measurement of scal consolidations. In practice, scal consolidations are usually implemented through a set of multi-year actions. This set of actions generates interac- tions between the spending and revenue components as well as between the unexpected component (announced upon implementation at time t) and the expected component of a plan (implemented at time t but announced in previous years or/and announced at time  Madina Karamysheva: National Research University Higher School of Economics, Moscow, Russia (E-mail: mkaramysheva@hse.ru). I am very greatful to Carlo Favero and Francesco Giavazzi and all seminar participants at Bocconi Univesrity, Lund University, Banque de France, Higher School of Economics (ICEF and FES), NEOMA Business School, for precious comments and suggestions. I gratefully acknowledge nancial support from Cariplo Fundation. 1