Fiscal stimulus and exit strategies in the EU: a model-based analysis

Werner Roeger and Jan in 't Veld

No 426, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: Summary for non-specialistsThis paper uses a multi-region dynamic general equilibrium model with collateral constrained households and residential investment to examine the effectiveness of fiscal policy. The presence of credit constrained households makes fiscal policy a more powerful tool for short run stabilisation and reinforces the effects from monetary accommodation at the zero lower bound. There exists an asymmetry between fiscal multipliers of temporary stimulus and multipliers of permanent fiscal consolidation, with the latter being smaller. Fiscal consolidations are likely to have short term negative output effects, but GDP will be higher in the medium and long run. Designing consolidations in such a way as to maximise the long term growth benefits from tax reforms could help to minimise the short term costs.

Keywords: Fiscal; stimulus; and; exit; strategies; in; the; EU:; a; Fiscal; Policy; Monetary; Policy; Collateral; Constraint; DSGE; modelling; Werner; Roeger; Jan; in; 't; Veld (search for similar items in EconPapers)
JEL-codes: E21 E62 F42 H31 H63 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2010-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0426

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