Debt Consolidation and Fiscal Stabilization of Deep Recessions
AbstractThe global financial crisis of 2008â09 has sent public debt on sharply higher trajectories. With the economic recovery gradually taking hold, the focus is now shifting to fiscal âexitâ strategies. Medium-term consolidation efforts are likely to include not only tax increases but also sizeable spending cuts. Our paper uses a standard new Keynesian model to show that the anticipation of such medium-term spending cuts generally enhances the expansionary effect of short-run fiscal stimulus. This conclusion still applies when monetary policy is constrained by the zero lower bound on policy rates. In this case, however, the reversal of government spending must not occur too early on the recovery path, or at least must be suitably gradual.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 100 (2010)
Issue (Month): 2 (May)
Other versions of this item:
- Corsetti, Giancarlo & Kuester, Keith & Meier, André & Müller, Gernot, 2010. "Debt consolidation and fiscal stabilization of deep recessions," CEPR Discussion Papers 7649, C.E.P.R. Discussion Papers.
- Giancarlo Corsetti & Keith Kuester & Andre Meier & Gernot J. Mueller, 2010. "Debt Consolidation and Fiscal Stabilization of Deep Recessions," Economics Working Papers ECO2010/03, European University Institute.
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
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