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Fiscal multipliers in downturns and the effects of Euro Area consolidation

Fiscal multipliers in downturns and the effects of Euro Area consolidation We estimate the impact of the fiscal consolidation actions in the Euro Area between 2011 and 2013 on output and public finances. We identify the discretionary fiscal consolidation effort based on new data by the European Commission. We combine these data with robust estimates from a rich meta-regression analysis on multipliers for various fiscal measures under different business cycle regimes. The frontloaded consolidation came at a considerable cost with an output loss of 7.7% and only a small gain to the primary balance of 0.2% of GDP. Backloading would have been much less costly due to lower multipliers. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Economics Letters Taylor & Francis

Fiscal multipliers in downturns and the effects of Euro Area consolidation

Fiscal multipliers in downturns and the effects of Euro Area consolidation

Applied Economics Letters , Volume 23 (16): 3 – Nov 1, 2016

Abstract

We estimate the impact of the fiscal consolidation actions in the Euro Area between 2011 and 2013 on output and public finances. We identify the discretionary fiscal consolidation effort based on new data by the European Commission. We combine these data with robust estimates from a rich meta-regression analysis on multipliers for various fiscal measures under different business cycle regimes. The frontloaded consolidation came at a considerable cost with an output loss of 7.7% and only a small gain to the primary balance of 0.2% of GDP. Backloading would have been much less costly due to lower multipliers.

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References (11)

Publisher
Taylor & Francis
Copyright
© 2016 Central Bank of Ireland
ISSN
1466-4291
eISSN
1350-4851
DOI
10.1080/13504851.2015.1137545
Publisher site
See Article on Publisher Site

Abstract

We estimate the impact of the fiscal consolidation actions in the Euro Area between 2011 and 2013 on output and public finances. We identify the discretionary fiscal consolidation effort based on new data by the European Commission. We combine these data with robust estimates from a rich meta-regression analysis on multipliers for various fiscal measures under different business cycle regimes. The frontloaded consolidation came at a considerable cost with an output loss of 7.7% and only a small gain to the primary balance of 0.2% of GDP. Backloading would have been much less costly due to lower multipliers.

Journal

Applied Economics LettersTaylor & Francis

Published: Nov 1, 2016

Keywords: Fiscal policy; fiscal multipliers; fiscal consolidation; Euro Area; E27; E62; H30

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