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An avenue for expansionary fiscal contractions

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Afonso, António

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Abstract

Expansionary fiscal contractions were first illustrated by several fiscal episodes that occurred in Europe during the 1980s. This paper suggests a simple analytical textbook model that encompasses both Keynesian and non-Keynesian effects of fiscal policy. In such a context, the possibility of expansionary fiscal contractions is linked to the responsiveness of the risk premium of domestic interest rates to the budgetary position of the government and to the existence of credit-rationed consumers.

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File URL: http://mpra.ub.uni-muenchen.de/4593/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4593.

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Date of creation: 2007
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Publication status: Forthcoming in The Icfai Journal of Public Finance 3.5(2007): pp. 7-15
Handle: RePEc:pra:mprapa:4593

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Related research
Keywords: fiscal policy expansionary fiscal contractions non-Keynesian effects

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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  1. Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Eric M. Engen & R. Glenn Hubbard, 2004. "Federal Government Debt and Interest Rates," NBER Working Papers 10681, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Bertola, Giuseppe & Drazen, Allan, 1993. "Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity," American Economic Review, American Economic Association, vol. 83(1), pages 11-26, March. [Downloadable!] (restricted)
    Other versions:
  4. António Afonso, 2005. "Fiscal Sustainability: The Unpleasant European Case," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 19-, March.
    Other versions:
  5. Sutherland, Alan, 1997. "Fiscal crises and aggregate demand: can high public debt reverse the effects of fiscal policy?," Journal of Public Economics, Elsevier, vol. 65(2), pages 147-162, August. [Downloadable!] (restricted)
    Other versions:
  6. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions be Expansionary? Tales of Two Small European Countries," NBER Working Papers 3372, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Heylen, Freddy & Everaert, Gerdie, 2000. " Success and Failure of Fiscal Consolidation in the OECD: A Multivariate Analysis," Public Choice, Springer, vol. 105(1-2), pages 103-24, October. [Downloadable!] (restricted)
  8. António Afonso, 2006. "Expansionary fiscal consolidations in Europe - new evidence," Working Paper Series 675, European Central Bank. [Downloadable!]
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  9. repec:pal:easeco:v:21:y:1995:i:1:p:57-66 is not listed on IDEAS
  10. Barry, Frank & Devereux, Michael B, 1995. "The 'Expansionary Fiscal Contraction' Hypothesis: A Neo-Keynesian Analysis," Oxford Economic Papers, Oxford University Press, vol. 47(2), pages 249-64, April. [Downloadable!] (restricted)
  11. Buchanan, James M, 1976. "Barro on the Ricardian Equivalence Theorem," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 337-42, April. [Downloadable!] (restricted)
  12. Riccardo Faini, 2006. "Fiscal policy and interest rates in Europe," Economic Policy, CEPR, CES, MSH, vol. 21(47), pages 443-489, 07. [Downloadable!] (restricted)
  13. Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for Non-Linear Effects of Fiscal Policy: Evidence from Industrial and Developing Countries," CEPR Discussion Papers 2374, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  14. Giudice, Gabriele & Turrini, Alessandro Antonio & Veld, Jan in't, 2004. "Non-Keynesian Fiscal Consolidation in the EU? Ex Post Evidence and Ex Ante Analysis," CEPR Discussion Papers 4388, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  15. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November. [Downloadable!] (restricted)
  16. Thomas Laubach, 2003. "New evidence on the interest rate effects of budget deficits and debt," Finance and Economics Discussion Series 2003-12, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  17. Alesina, A. & Perotti, R., 1995. "Fiscal Expansions and Adjustments in OECD Countries," Discussion Papers 1995_25, Columbia University, Department of Economics.
  18. C. John McDermott & Robert F. Westcott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Working Papers 96/59, International Monetary Fund.
  19. David C. Rose & David R. Hakes, 1995. "Deficits and Interest Rates as Evidence of Ricardian Equivalence," Eastern Economic Journal, Eastern Economic Association, vol. 21(1), pages 57-66, Winter. [Downloadable!]
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