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Did Fiscal Consolidation Cause the Double Dip Recession in the Euro Area?

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  • Philipp Heimberger

    () (Institute for Comprehensive Analysis of the Economy, Johannes Kepler University Linz, Austria)

Abstract

This paper analyses the short-run effects of fiscal consolidation measures on economic activity in the euro area during the euro crisis. It presents new econometric estimates on the link between cumulative GDP growth and fiscal austerity measures during 2011-2013. The main empirical finding is that the depth of the economic crisis in the euro area's economies is closely related to the harshness of fiscal austerity. Cumulative multiplier estimates are found to vary in a range from 1.4 to 2.1, depending on the data source used to identify the intensity of fiscal consolidation. Given these multiplier values, a reasonable approximation of the size of the output losses due to fiscal austerity in the euro area during 2011-2013 is in the range of 5.5% to 8.4% of GDP. Against the background of the prevailing macroeconomic and institutional circumstances, fiscal consolidation is argued to be the cause of the double-dip recession.

Suggested Citation

  • Philipp Heimberger, 2015. "Did Fiscal Consolidation Cause the Double Dip Recession in the Euro Area?," ICAE Working Papers 41, Johannes Kepler University, Institute for Comprehensive Analysis of the Economy.
  • Handle: RePEc:ico:wpaper:41
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    File URL: https://www.jku.at/icae/content/e319783/e319785/e319818/wp41_ger.pdf
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    References listed on IDEAS

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    Cited by:

    1. Claudius Gräbner & Philipp Heimberger & Jakob Kapeller & Bernhard Schütz, 2017. "Is Europe Disintegrating? Macroeconomic Divergence, Structural Polarisation, Trade and Fragility," wiiw Working Papers 136, The Vienna Institute for International Economic Studies, wiiw.
    2. repec:clr:wugarc:y:2016v:42i:03p:451 is not listed on IDEAS
    3. Fritz Breuss, 2017. "The United States-Euro Area Growth Gap Puzzle," WIFO Working Papers 541, WIFO.
    4. Philipp Heimberger, 2018. "The Dynamic Effects of Fiscal Consolidation Episodes on Income Inequality," wiiw Working Papers 147, The Vienna Institute for International Economic Studies, wiiw.
    5. repec:clr:wugarc:y:2016v:42i:3p:451 is not listed on IDEAS

    More about this item

    Keywords

    fiscal policy; fiscal multiplier; fiscal consolidation; austerity; growth; eurozone;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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