Expansionary Austerity New International Evidence

Daniel Leigh, Andrea Pescatori and Jaime Guajardo

No 2011/158, IMF Working Papers from International Monetary Fund

Abstract: This paper investigates the short-term effects of fiscal consolidation on economic activity in OECD economies. We examine the historical record, including Budget Speeches and IMFdocuments, to identify changes in fiscal policy motivated by a desire to reduce the budget deficit and not by responding to prospective economic conditions. Using this new dataset, our estimates suggest fiscal consolidation has contractionary effects on private domestic demand and GDP. By contrast, estimates based on conventional measures of the fiscal policy stance used in the literature support the expansionary fiscal contractions hypothesis but appear to be biased toward overstating expansionary effects.

Keywords: WP; real GDP; economic activity; Fiscal policy; taxation; government expenditure; output fluctuations; fiscal consolidation; fiscal policy change; estimation result; fiscal policy shock; real GDP relative; Fiscal consolidation; Private consumption; Government debt management; Global; IMF document; B. estimation result; fiscal policy stance; contractions hypothesis; effect of fiscal consolidation; Exchange rate arrangements (search for similar items in EconPapers)
Pages: 40
Date: 2011-07-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (204)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=25021 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2011/158

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().