IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v83y1993i1p11-26.html
   My bibliography  Save this article

Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity

Author

Listed:
  • Bertola, Giuseppe
  • Drazen, Allan

Abstract

The authors propose and solve an optimizing model that explains counterintuitive effects of fiscal policy in terms of expectations. If government spending follows an upward-trending stochastic process that the public believes may fall sharply when it reaches specific "trigger" points, then optimizing consumption behavior and simple budget-constraint arithmetic imply a nonlinear relationship between private consumption and government spending. Th is theoretical relation is consistent with the experience of several countries. Copyright 1993 by American Economic Association.

Suggested Citation

  • 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.
  • Handle: RePEc:aea:aecrev:v:83:y:1993:i:1:p:11-26
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0002-8282%28199303%2983%3A1%3C11%3ATPABCE%3E2.0.CO%3B2-N&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:83:y:1993:i:1:p:11-26. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.