When is Austerity Ineffective?

Luigi Marattin

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: This paper offers a formal analysis of the relationship between changes in government primary balance and debt-to-GDP ratio. it establishes the conditions under which a fiscal consolidation increases - instead of decreasing - the stock of government liabilities relative to aggregate output. A crucial role is played by the relationship between the elasticities of average cost of debt and nominal output to primary balance: while the former depends on debt maturity and risk premia dynamics, the latter relates to the well-known controversy on the size of government spending multipliers. The paper shows an application to the ongoing fiscal consolidation process in the Eurozone.

JEL-codes: E62 H32 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:wp880

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