The Permanent Effects of Fiscal Consolidations

Antonio Fatas and Lawrence Summers

No 22374, NBER Working Papers from National Bureau of Economic Research, Inc

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. Our results provide support for the presence of strong hysteresis effects of fiscal policy. The large size of the effects points in the direction of self-defeating fiscal consolidations as suggested by DeLong and Summers (2012). Attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to GDP ratio through their long-term negative impact on output.

JEL-codes: E32 E62 O4 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-mac and nep-opm
Note: EFG
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Citations: View citations in EconPapers (32)

Published as The Permanent Effects of Fiscal Consolidations , Antonio Fatás, Lawrence H. Summers. in NBER International Seminar on Macroeconomics 2017 , Frankel, Rey, and Engel. 2018
Published as Antonio Fatás & Lawrence H. Summers, 2017. "The Permanent Effects of Fiscal Consolidations," Journal of International Economics, .

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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 (2015)
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