Planned Fiscal Consolidation and Under-Estimated Multipliers: Revisiting the Evidence and Relevance for the Euro Area

Daniel Gros, Alessandro Liscai and Farzaneh Shamsfakhr

No 35, EconPol Policy Reports from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: The Great Financial Crisis caused a deep recession and led to very large public deficits. When financial market tensions erupted, many European countries were forced to reduce their deficits. This ‘austerity’ is often credited with the disappointingly slow recovery during the years after the financial crisis. One reason for such a slow recovery could have been that the impact of a reduction in the fiscal deficits is larger than anticipated during a recession, especially if it is accompanied by financial market tensions. At the height of the financial crisis and in its immediate aftermath, this might not have been properly taken into account.

Date: 2022
New Economics Papers: this item is included in nep-ban, nep-eec and nep-mac
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