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Medium-term fiscal multipliers during protracted economic contractions

Salvatore Dell'Erba, Ksenia Koloskova and Marcos Poplawski-Ribeiro ()

Journal of Macroeconomics, 2018, vol. 56, issue C, 35-52

Abstract: 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)
Date: 2018
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DOI: 10.1016/j.jmacro.2017.09.004

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Handle: RePEc:eee:jmacro:v:56:y:2018:i:c:p:35-52