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Risk Aversion and Fiscal Consolidation Programs

Stefano Grancini ()

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper we provide evidence that there are statistical and economically meaningful differences in terms of attitudes towards risk at the aggregate level across countries, as captured by country-specific estimations of the coefficient of relative risk aversion. This has important implications for fiscal policy as it leads to large differences in the output response to the same fiscal policy shock. When calibrating the risk aversion at the country level, using country-specific estimates of the coefficient of relative risk aversion, we find multipliers to the same fiscal consolidation shock to differ as much as between 0.35 and 0.55.

Keywords: CRRA; Fiscal Multipliers; Risk Aversion; Fiscal Consolidation Programs. (search for similar items in EconPapers)
JEL-codes: D81 E21 E62 H63 O57 (search for similar items in EconPapers)
Date: 2021-01-18
New Economics Papers: this item is included in nep-mac and nep-upt
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