Expansionary contractions and fiscal free lunches: too good to be true?

Richard McManus, Gulcin Ozkan and Dawid Trzeciakiewicz

Discussion Papers from Department of Economics, University of York

Abstract: This paper builds a framework to jointly examine the possibility of both ‘expansionary fiscal contractions’ (austerity increasing output) and ‘fiscal free lunches’ (expansions reducing government debt), arguments supported by the austerity and stimulus camps, respectively, in recent debates. We propose a new metric quantifying the budgetary implications of fiscal action, a key aspect of fiscal policy particularly at the monetary zero lower bound. We find that austerity needs to be highly persistent and credible to be expansionary, and stimulus temporary, responsive and well-targeted in order to lower debt. We conclude that neitherare likely, especially during periods of economic distress.

Keywords: fiscal austerity; expansionary contractions; fiscal free lunch; zero lower bound. (search for similar items in EconPapers)
JEL-codes: E65 H2 H3 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-mac
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Journal Article: Expansionary Contractions and Fiscal Free Lunches: Too Good To Be True? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:yor:yorken:15/28

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