The Permanent Effects of Fiscal Consolidations

Lawrence Summers and Fatás, Antonio
Authors registered in the RePEc Author Service: Antonio Fatas

No 10902, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The global financial crisis has permanently lowered the path of GDP in all advanced economies. At the same time, and in response to rising government debt levels, many of these countries have been engaging in fiscal consolidations that have had a negative impact on growth rates. We empirically explore the connections between these two facts by extending to longer horizons the methodology of Blanchard and Leigh (2013) regarding fiscal policy multipliers. Using data seven years after the beginning of the crisis as well as estimates on potential output our analysis suggests that attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to GDP ratio through their negative impact on output. Our results provide support for the possibility of self-defeating fiscal consolidations in depressed economies as developed by DeLong and Summers (2012).

Keywords: Austerity; Fiscal policy; Great recession; Hysteresis; Persistence (search for similar items in EconPapers)
JEL-codes: E32 E62 O40 (search for similar items in EconPapers)
Date: 2015-10
New Economics Papers: this item is included in nep-eec, nep-mac and nep-opm
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Citations: View citations in EconPapers (24)

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Related works:
Journal Article: The permanent effects of fiscal consolidations (2018)
Chapter: The Permanent Effects of Fiscal Consolidations (2017)
Working Paper: The Permanent Effects of Fiscal Consolidations (2016)
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