Planned Fiscal Consolidations and Growth Forecast Errors – New Panel Evidence on Fiscal Multipliers

Ansgar Belke, Kronen Dominik and Osowski Thomas ()
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Kronen Dominik: Universitiy of Duisburg Essen, Universitätsstraße 12, 45117 Essen, Germany
Osowski Thomas: Universitiy of Duisburg Essen, Universitätsstraße 12, 45117 Essen, Germany

Review of Economics, 2015, vol. 66, issue 1, 47-70

Abstract: This paper analyzes the effect of planned fiscal consolidation on GDP growth forecast errors from the years 2010-2013 using cross section analyses and fixed effects estimations. Our main findings are that fiscal multipliers have been underestimated in most instances for the year 2011 while we find little to no evidence for the years 2010 and especially the latter years 2012/13. Since the underestimation of fiscal multipliers seems to have decreased over time, it may indicate learning effects of forecasters. However, the implications for fiscal policy should be considered with caution as a false forecast of fiscal multipliers does not confirm that austerity is the wrong fiscal approach but only suggests a too optimistic assessment of fiscal multipliers for the year 2011.

Keywords: Fiscal Multiplier; Austerity; Growth forecast errors; Panel econometrics; Fiscal Multiplier; Austerity; Growth forecast errors; Panel econometrics (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1515/roe-2015-0104

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