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Medium-Term Fiscal Multipliers during Protracted Recessions

Salvatore Dell'Erba, Marcos Poplawski Ribeiro and Ksenia Koloskova
Authors registered in the RePEc Author Service: Marcos Poplawski-Ribeiro ()

No 2014/213, IMF Working Papers from International Monetary Fund

Abstract: The paper examines the consequences of fiscal consolidation in times of persistently low growth and high unemployment by estimating medium-term fiscal multipliers during protracted recessions (PR) in a sample of 17 OECD countries. Based on Jorda’s (2005) local projection methodology, we find that cumulative fiscal multipliers related to output, employment and unemployment at five-year horizons are significantly above one during PR episodes. These results suggest that medium-term fiscal consolidation plans to reduce public debt burdens should proceed gradually if economic activity remains below trend for a prolonged period.

Keywords: WP; labor market; real GDP; fiscal policy; unemployment rate; fiscal consolidations; cumulative multipliers; labour market; protracted recessions; PR episode; unemployment multiplier; TB consolidation; PR period; output effect; EB consolidation; consolidation multiplier; EB multiplier; Fiscal consolidation; Employment; Unemployment; Fiscal multipliers; Labor markets; Global (search for similar items in EconPapers)
Pages: 42
Date: 2014-12-05
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Handle: RePEc:imf:imfwpa:2014/213