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Expansionary Austerity? International Evidence

Listed author(s):
  • Jaime Guajardo
  • Daniel Leigh
  • Andrea Pescatori

This paper investigates the short-term effects of fiscal consolidation on economic activity in OECD economies. We examine contemporaneous policy documents to identify changes in fiscal policy motivated by a desire to reduce the budget deficit and not by responding to prospective economic conditions. Using this new dataset, our estimates suggest that fiscal consolidation has contractionary effects on private demand and GDP. By contrast, estimates based on conventional measures of the fiscal policy stance used in the literature support the expansionary fiscal contractions hypothesis but appear to be biased toward overstating expansionary effects.

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File URL: http://hdl.handle.net/10.1111/jeea.12083
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Article provided by European Economic Association in its journal Journal of the European Economic Association.

Volume (Year): 12 (2014)
Issue (Month): 4 (08)
Pages: 949-968

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Handle: RePEc:bla:jeurec:v:12:y:2014:i:4:p:949-968
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