Long‐term Effects of Fiscal Stimulus and Austerity in Europe

Sebastian Gechert, Gustav Horn and Christoph Paetz ()

Oxford Bulletin of Economics and Statistics, 2019, vol. 81, issue 3, 647-666

Abstract: We analyze whether there are ne gative (positive) long‐term effects of austerity measures (stimulus measures) on potential output growth. Based on the approach of Blanchard and Leigh () and Fatás and Summers () and using a novel data set of narratively identified fiscal policy shocks, we estimate the impact of these shocks on potential output. We robustly find a considerable underestimation of multiplier effects and their persistence for most European countries in the early years after the financial crisis and subsequent Euro Area crisis. We conclude that fiscal consolidation was badly timed and thus not only deepened the crisis but may have caused evitable hysteresis effects.

Date: 2019
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Citations: View citations in EconPapers (27)

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https://doi.org/10.1111/obes.12287

Related works:
Working Paper: Long-term effects of fiscal stimulus and austerity in Europe (2018)
Working Paper: Long-term effects of fiscal stimulus and austerity in Europe (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:obuest:v:81:y:2019:i:3:p:647-666

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