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Medium-term fiscal multipliers during protracted economic contractions

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  • Dell'Erba, Salvatore
  • Koloskova, Ksenia
  • Poplawski-Ribeiro, Marcos

Abstract

The paper examines the consequences of fiscal consolidation in times of persistently low growth and high unemployment by estimating medium-term fiscal multipliers during protracted economic contractions in a sample of 17 OECD countries. Based on Jordà’s (2005) local projection methodology, we find that cumulative fiscal multipliers related to output, employment and unemployment at five-year horizons are significantly above one during protracted contractions. These results suggest that medium-term fiscal consolidation plans to reduce public debt burdens may lead to hysteresis effects and should proceed gradually if economic activity remains below trend for a prolonged period.

Suggested Citation

  • Dell'Erba, Salvatore & Koloskova, Ksenia & Poplawski-Ribeiro, Marcos, 2018. "Medium-term fiscal multipliers during protracted economic contractions," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 35-52.
  • Handle: RePEc:eee:jmacro:v:56:y:2018:i:c:p:35-52
    DOI: 10.1016/j.jmacro.2017.09.004
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    5. Carolina Correa-Caro & Leandro Medina & Mr. Marcos Poplawski Ribeiro & Mr. Bennett W Sutton, 2018. "Fiscal Stimulus Impact on Firms' Profitability During the Global Financial Crisis," IMF Working Papers 2018/251, International Monetary Fund.
    6. Larch, Martin & Claeys, Peter & Van Der Wielen, Wouter, 2022. "The scarring effects of major economic downturns: The role of fiscal policy and government investment," EIB Working Papers 2022/14, European Investment Bank (EIB).
    7. Mr. Tidiane Kinda & Andras Lengyel & Kaustubh Chahande, 2022. "Fiscal Multipliers During Pandemics," IMF Working Papers 2022/149, International Monetary Fund.
    8. Guo, Junjie & Li, Youshu & Shao, Qinglong, 2022. "Cross-category spillover effects of economic policy uncertainty between China and the US: Time and frequency evidence," Journal of Asian Economics, Elsevier, vol. 80(C).
    9. Carolina Correa-Caro & Leandro Medina & Marcos Poplawski-Ribeiro & Bennett Sutton, 2021. "Fiscal Stimulus and Firms’ Sales and Capital Expenditure During the Global Financial Crisis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(3), pages 489-535, September.
    10. Syed Sadaqat Ali Shah & Muhammad Asim Afridi, 2023. "Cyclical variation of fiscal multipliers in Caucasus and Central Asia economies: an empirical evidence," Economic Change and Restructuring, Springer, vol. 56(6), pages 4531-4563, December.

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    More about this item

    Keywords

    Fiscal consolidations; Cumulative multipliers; Labour market; Protracted economic contractions;
    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
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • J40 - Labor and Demographic Economics - - Particular Labor Markets - - - General

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