Fiscal multipliers in downturns and the effects of Euro Area consolidation

Sebastian Gechert, Andrew Hughes Hallett and Ansgar Rannenberg

Applied Economics Letters, 2016, vol. 23, issue 16, 1138-1140

Abstract: We estimate the impact of the fiscal consolidation actions in the Euro Area between 2011 and 2013 on output and public finances. We identify the discretionary fiscal consolidation effort based on new data by the European Commission. We combine these data with robust estimates from a rich meta-regression analysis on multipliers for various fiscal measures under different business cycle regimes. The frontloaded consolidation came at a considerable cost with an output loss of 7.7% and only a small gain to the primary balance of 0.2% of GDP. Backloading would have been much less costly due to lower multipliers.

Date: 2016
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DOI: 10.1080/13504851.2015.1137545

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