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Demand effects of fiscal policy since 2008

Engelbert Stockhammer, Walid Qazizada and Sebastian Gechert

No 2016-8, Economics Discussion Papers from School of Economics, Kingston University London

Abstract: The Great Recession 2007-09 has led to controversies around the role of fiscal policy. Academically this has translated into renewed interest in the effects of fiscal policy. Several studies have since suggested that fiscal multipliers are substantially larger in downswings or depressions than in the upswing. In terms of economic policy reactions countries have differed substantially in the fiscal stance. It is an important open question how big the impact of these policies on economic growth has been. The paper uses the regime-dependent multiplier estimates by Qazizada and Stockhammer (2015) and by Gechert and Rannenberg (2014) to calculate the demand effects of fiscal policy for Germany, USA, UK, Greece, Ireland, Italy, Portugal and Spain since 2008. This allows assessing to what extent fiscal policy explains different economic performances across countries. We find expansionary fiscal policy in 2008/09 in all countries, but since 2010 fiscal policies have differed. While the fiscal impact was roughly neutral in Germany, the UK, and the USA, it was large and negative in Greece, Ireland, Italy, Portugal, and Spain.

Keywords: multiplier; fiscal policy; austerity; recession (search for similar items in EconPapers)
JEL-codes: C36 E62 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2016-04-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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