Did Fiscal Consolidation Cause the Double-Dip Recession in the Euro Area?

Philipp Heimberger

No 130, wiiw Working Papers from The Vienna Institute for International Economic Studies, wiiw

Abstract: Abstract This paper analyses the short-run effects of fiscal consolidation measures on economic activity in the euro area during the euro crisis. It presents new econometric estimates on the link between cumulative GDP growth and fiscal austerity measures during 2011-2013. The main empirical finding is that the depth of the economic crisis in the euro area's economies is closely related to the harshness of fiscal austerity. Cumulative multiplier estimates are found to vary in a range from 1.4 to 2.1, depending on the data source used to identify the intensity of fiscal consolidation. Given these multiplier values, a reasonable approximation of the size of the output losses due to fiscal austerity in the euro area during 2011-2013 is in the range of 5.5% to 8.4% of GDP. Against the background of the prevailing macroeconomic and institutional circumstances, fiscal consolidation is argued to be the cause of the double-dip recession.

Keywords: fiscal policy; fiscal multiplier; fiscal consolidation; austerity; growth; eurozone (search for similar items in EconPapers)
JEL-codes: E61 E62 E63 (search for similar items in EconPapers)
Pages: 22 pages including 6 Tables and 2 Figures
Date: 2016-10
New Economics Papers: this item is included in nep-eec, nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Did fiscal consolidation cause the double-dip recession in the euro area? (2017)
Working Paper: Did Fiscal Consolidation Cause the Double Dip Recession in the Euro Area? (2015)
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