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Fiscal Austerity and the Multiplier in Times of Crisis

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  • Müller Gernot J.

    (University of Bonn, Regina-Pacis-Weg 3,Bonn, Germany)

Abstract

To address concerns about the sustainability of public debt, most industrialized countries shifted towards fiscal austerity after 2010. A popular concern is that austerity is self-defeating, because fiscal multipliers can be large. Specifically, a number of recent studies find that multipliers tend to be large during financial crises and/or if monetary policy is constrained by the zero lower bound. However, public debt crises tend to have an offsetting effect by making multipliers smaller than during normal times. Consequently, while austerity is no cure for all, it is unlikely to be literally self-defeating when sovereign risk is high.

Suggested Citation

  • Müller Gernot J., 2014. "Fiscal Austerity and the Multiplier in Times of Crisis," German Economic Review, De Gruyter, vol. 15(2), pages 243-258, May.
    • Handle: RePEc:bpj:germec:v:15:y:2014:i:2:p:243-258
    DOI: 10.1111/geer.12027
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    Cited by:

    1. Michaelis, Henrike & Elstner, Steffen & Schmidt, Christoph M. & Bofinger, Peter & Feld, Lars P. & Schnabel, Isabel & Wieland, Volker, 2015. "Keine Notwendigkeit einer Reform des Gesetzes zur Förderung der Stabilität und des Wachstums der Wirtschaft," Working Papers 02/2015, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    2. Kurt Kratena & Mark Sommer, 2014. "Labour Market Policy and Environmental Fiscal Devaluation: A Cure for Spain in the Aftermath of the Great Recession?," WIFO Working Papers 476, WIFO.
    3. Sebastian Dullien & Till Treeck & Henrike Michaelis & Steffen Elstner & Christoph M. Schmidt, 2016. "Argumente gegen die Reform des Stabilitätsgesetzes wenig überzeugend — eine Replik [An Assessment of the Economic Stability and Growth Law — Reply and Response]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 96(4), pages 258-264, April.
    4. Roberta Santis & Piero Esposito & Elena Masi, 2019. "Structural determinants of potential output growth in Europe and the role of fiscal policy," International Economics and Economic Policy, Springer, vol. 16(4), pages 565-591, October.
    5. Roberta De Santis & Piero Esposito & Elena Masi, 2017. "Are there common structural determinants of potential output growth in Europe? An empirical exercise for 11 EMU countries," Working Papers 4, Department of the Treasury, Ministry of the Economy and of Finance.
    6. Berg Tim Oliver, 2015. "Time Varying Fiscal Multipliers in Germany," Review of Economics, De Gruyter, vol. 66(1), pages 13-46, April.
    7. Berg, Tim Oliver, 2019. "Business Uncertainty And The Effectiveness Of Fiscal Policy In Germany," Macroeconomic Dynamics, Cambridge University Press, vol. 23(4), pages 1442-1470, June.
    8. Drygalla, Andrej & Holtemöller, Oliver & Kiesel, Konstantin, 2020. "The Effects Of Fiscal Policy In An Estimated Dsge Model—The Case Of The German Stimulus Packages During The Great Recession," Macroeconomic Dynamics, Cambridge University Press, vol. 24(6), pages 1315-1345, September.
    9. Klaus Gründler & Niklas Potrafke, 2019. "Ideologically-charged terminology: austerity, fiscal consolidation, and sustainable governance," CESifo Working Paper Series 7613, CESifo.
    10. Steffen Elstner & Henrike Michaelis & Christoph M. Schmidt, 2016. "Das leere Versprechen der aktiven Konjunktursteuerung [The Empty Promises of Active Economic Fine-Tuning]," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 96(8), pages 534-540, August.
    11. Henrike Michaelis & Steffen Elstner & Christoph Schmidt, 2015. "Überprüfung des Stabilitäts- und Wachstumsgesetzes," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 95(12), pages 830-836, December.

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