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What did forecasters learn during the European sovereign debt crisis about the impact of fiscal policies on economic growth?

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  • Gόrnicka, Lucyna
  • Kamps, Christophe
  • Koester, Gerrit
  • Leiner-Killinger, Nadine

Abstract

Economists often try to forecast whether the economy as a whole will grow or contract. When measuring the effects of fiscal policy measures on economic activity, such forecasts are based on so-called multipliers. Using a new dataset compiled from economic forecasts and recommendations by the European Commission under the excessive deficit procedure of the Stability and Growth Pact, we derive the multipliers that were assumed by forecasters during the European sovereign debt crisis to project the effects of fiscal consolidation on economic growth. Our results confirm that forecasters adapted their assumptions on multipliers as the crisis progressed and accounted for larger effects of consolidation on growth later on in the crisis. Another finding is that the actual fiscal multipliers were not exceptionally large during the crisis. JEL Classification: E32, E62, H20, H5

Suggested Citation

  • Gόrnicka, Lucyna & Kamps, Christophe & Koester, Gerrit & Leiner-Killinger, Nadine, 2018. "What did forecasters learn during the European sovereign debt crisis about the impact of fiscal policies on economic growth?," Research Bulletin, European Central Bank, vol. 49.
    • Handle: RePEc:ecb:ecbrbu:2018:0049:
    Note: 491621
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    References listed on IDEAS

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    1. Alberto Alesina & Silvia Ardagna, 2010. "Large Changes in Fiscal Policy: Taxes versus Spending," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 35-68, National Bureau of Economic Research, Inc.
    2. Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," American Economic Review, American Economic Association, vol. 103(3), pages 117-120, May.
    3. Olivier J Blanchard & Daniel Leigh, 2014. "Learning about Fiscal Multipliers from Growth Forecast Errors," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(2), pages 179-212, June.
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    More about this item

    Keywords

    business cycle; fiscal consolidation; fiscal multipliers;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H5 - Public Economics - - National Government Expenditures and Related Policies

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