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When is Austerity Ineffective?

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  • L. Marattin

Abstract

This paper offers a formal analysis of the relationship between changes in government primary balance and debt-to-GDP ratio. it establishes the conditions under which a fiscal consolidation increases - instead of decreasing - the stock of government liabilities relative to aggregate output. A crucial role is played by the relationship between the elasticities of average cost of debt and nominal output to primary balance: while the former depends on debt maturity and risk premia dynamics, the latter relates to the well-known controversy on the size of government spending multipliers. The paper shows an application to the ongoing fiscal consolidation process in the Eurozone.

Suggested Citation

  • L. Marattin, 2013. "When is Austerity Ineffective?," Working Papers wp880, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:wp880
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    File URL: http://amsacta.unibo.it/3679/1/WP880.pdf
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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