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Fiscal Consolidation: Part 2. Fiscal Multipliers and Fiscal Consolidations

Listed author(s):
  • Ray Barrell

    (Brunel University)

  • Dawn Holland

    (National Institute of Economic and Social Research)

  • Ian Hurst

    (National Institute of Economic and Social Research)

This paper looks at various aspects of fiscal consolidation in 18 OECD economies. The prospects for fiscal consolidation depend upon the problems the country may face with its debt stock, the political will to deal with these problems and on the costs of consolidation. The analysis is based on a series of simulations using the National Institute Global Econometric Model, NiGEM. The properties of the NiGEM model are discussed first. Although the model is estimated it has a strong role for expectations and can be run under different modes of expectations formation. This allows a decomposition of the factors that might affect the results. Temporary and permanent shifts in fiscal policy are assessed as well as the potential impact of fiscal consolidation plans under different monetary and fiscal feedback rules and different modes of expectations formation. If fiscal policy is expected to be tightened in the future, then long rates will fall now, and perhaps even induce a short-term expansion of output. Expansionary fiscal contractions of this sort are rare, however, and none are anticipated with the programmes that are investigated. Consolidation budgétaire : Partie 2. Multiplicateurs budgétaires et assainissement des finances publiques Ce document examine divers aspects de l’assainissement des finances publiques dans 18 pays de l’OCDE. Le potentiel de consolidation budgétaire dépend du montant de la dette d’un pays et des problèmes qui peuvent en résulter, de la volonté politique de traiter ces problèmes et des coûts du redressement. L’analyse s’appuie sur un ensemble de simulations fondées sur le modèle économétrique mondial de l'Institut de recherche économique et sociale du Royaume-Uni (NiGEM). Les auteurs examinent en premier lieu les caractéristiques du modèle NiGEM. Même si ce modèle procède par estimation, il conditionne fortement les anticipations et peut être appliqué à différents modes de formation des anticipations. Cela permet de décomposer les facteurs susceptibles d’influer sur les résultats. Les auteurs évaluent ensuite les modifications temporaires et permanentes de la politique budgétaire, ainsi que l’impact potentiel des plans de redressement budgétaire selon différentes règles de rétroaction budgétaire et monétaire et différents modes de formation des anticipations. Si l’on s’attend à un durcissement de la politique budgétaire à l’avenir, les taux longs baisseront immédiatement, ce qui pourrait même induire une expansion à court terme de la production. Néanmoins, les contractions budgétaires expansionnistes de ce type sont exceptionnellement rares, et les programmes étudiés n’en prévoient aucune.

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Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 933.

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Date of creation: 22 Feb 2012
Handle: RePEc:oec:ecoaaa:933-en
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