Non-linearities in fiscal policy: The role of debt

Alexandra Fotiou

European Economic Review, 2022, vol. 150, issue C

Abstract: This paper assesses how a country’s initial debt level affects the effectiveness of fiscal policy. Using a panel of 13 countries between 1980 and 2014, I find that when debt is high, fiscal consolidations based on tax increases are in general self-defeating, in that they result in an increase of the debt-to-GDP ratio. Instead, cutting public expenditure has a less pronounced effect on economic activity and can stabilize debt.

Keywords: Non-linearities; Debt; Recessions; Expansions; Fiscal consolidations; Narrative approach; Interacted-STVAR (search for similar items in EconPapers)
JEL-codes: C33 E62 H60 H63 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292122001210
Full text for ScienceDirect subscribers only

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:eee:eecrev:v:150:y:2022:i:c:s0014292122001210

DOI: 10.1016/j.euroecorev.2022.104212

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().