Medium-term fiscal multipliers during protracted economic contractions
Ksenia Koloskova and
Marcos Poplawski-Ribeiro ()
Journal of Macroeconomics, 2018, vol. 56, issue C, 35-52
The paper examines the consequences of fiscal consolidation in times of persistently low growth and high unemployment by estimating medium-term fiscal multipliers during protracted economic contractions in a sample of 17 OECD countries. Based on Jordà’s (2005) local projection methodology, we find that cumulative fiscal multipliers related to output, employment and unemployment at five-year horizons are significantly above one during protracted contractions. These results suggest that medium-term fiscal consolidation plans to reduce public debt burdens may lead to hysteresis effects and should proceed gradually if economic activity remains below trend for a prolonged period.
Keywords: Fiscal consolidations; Cumulative multipliers; Labour market; Protracted economic contractions (search for similar items in EconPapers)
JEL-codes: E32 E62 H20 H50 J40 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:56:y:2018:i:c:p:35-52
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