Debt Consolidation and Fiscal Stabilization of Deep Recessions

Giancarlo Corsetti, Keith Kuester, Andre Meier and Gernot J. Mueller
Authors registered in the RePEc Author Service: Gernot J. Müller

No ECO2010/03, Economics Working Papers from European University Institute

Abstract: The global financial crisis of 2008–09 has sent public debt on sharply higher trajectories. With the economic recovery gradually taking hold, the focus is now shifting to fiscal “exit” strategies. Medium-term consolidation efforts are likely to include not only tax increases but also sizeable spending cuts. Our paper uses a standard new Keynesian model to show that the anticipation of such medium-term spending cuts generally enhances the expansionary effect of short-run fiscal stimulus. This conclusion still applies when monetary policy is constrained by the zero lower bound on policy rates. In this case, however, the reversal of government spending must not occur too early on the recovery path, or at least must be suitably gradual.

Keywords: Fiscal policy; fiscal stabilization; fiscal multiplier; exit strategy; consolidation; monetary policy; zero lower bound (search for similar items in EconPapers)
JEL-codes: E52 E62 E63 (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (93)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Debt Consolidation and Fiscal Stabilization of Deep Recessions (2010)
Working Paper: Debt consolidation and fiscal stabilization of deep recessions (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2010/03

Access Statistics for this paper

More papers in Economics Working Papers from European University Institute Badia Fiesolana, Via dei Roccettini, 9, 50014 San Domenico di Fiesole (FI) Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Cécile Brière ().