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Fiscal consolidation: austerity and alternatives

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  • Miller, Marcus

Abstract

We study the path of the debt/output ratio during Fiscal Consolidation first when there is no demand failure and output matches exogenously growing supply throughout; then, in a time of recession, when expenditure cuts reduce demand so growth slows and debt/output ratios rise further and faster. As the correlation between slow growth and high debt arises from demand weakness, faster consolidation would prove counter-productive, ceteris paribus. Better, according to DeLong and Summers, that fiscal consolidation efforts be state contingent | allowing room for economic stabilisation; or, as Shiller has argued, that debt itself be state contingent, being indexed to GDP.

Suggested Citation

  • Miller, Marcus, 2013. "Fiscal consolidation: austerity and alternatives," CEPR Discussion Papers 9476, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9476
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    More about this item

    Keywords

    Debt; Deficits; Fiscal consolidation; Economic stabilisation;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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