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An avenue for expansionary fiscal contractions

  • Afonso, António

Expansionary fiscal contractions were first illustrated by several fiscal episodes that occurred in Europe during the 1980s. This paper suggests a simple analytical textbook model that encompasses both Keynesian and non-Keynesian effects of fiscal policy. In such a context, the possibility of expansionary fiscal contractions is linked to the responsiveness of the risk premium of domestic interest rates to the budgetary position of the government and to the existence of credit-rationed consumers.

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File URL: https://mpra.ub.uni-muenchen.de/4593/1/MPRA_paper_4593.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4593.

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Date of creation: 2007
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Publication status: Forthcoming in The Icfai Journal of Public Finance 3.5(2007): pp. 7-15
Handle: RePEc:pra:mprapa:4593
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  1. Giavazzi, Francesco & Pagano, Marco, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," CEPR Discussion Papers 417, C.E.P.R. Discussion Papers.
  2. Giavazzi, Francesco & Jappelli, Tullio & Pagano, Marco, 2000. "Searching for Non-Linear Effects of Fiscal Policy: Evidence from Industrial and Developing Countries," CEPR Discussion Papers 2374, C.E.P.R. Discussion Papers.
  3. Alan Sutherland, . "Fiscal Crises and Aggregate Demand: Can High Public Debt Reverse the Effects of Fiscal Policy?," Discussion Papers 95/17, Department of Economics, University of York.
  4. António Afonso, 2010. "Expansionary fiscal consolidations in Europe: new evidence," Applied Economics Letters, Taylor & Francis Journals, vol. 17(2), pages 105-109, January.
  5. Thomas Laubach, 2003. "New evidence on the interest rate effects of budget deficits and debt," Finance and Economics Discussion Series 2003-12, Board of Governors of the Federal Reserve System (U.S.).
  6. Eric M. Engen & R. Glenn Hubbard, 2004. "Federal Government Debt and Interest Rates," NBER Working Papers 10681, National Bureau of Economic Research, Inc.
  7. Barry, Frank & Devereux, Michael B, 1995. "The 'Expansionary Fiscal Contraction' Hypothesis: A Neo-Keynesian Analysis," Oxford Economic Papers, Oxford University Press, vol. 47(2), pages 249-64, April.
  8. Bertola, Giuseppe & Drazen, Allan, 1993. "Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity," American Economic Review, American Economic Association, vol. 83(1), pages 11-26, March.
  9. Heylen, Freddy & Everaert, Gerdie, 2000. "Success and Failure of Fiscal Consolidation in the OECD: A Multivariate Analysis," Public Choice, Springer, vol. 105(1-2), pages 103-24, October.
  10. Buchanan, James M, 1976. "Barro on the Ricardian Equivalence Theorem," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 337-42, April.
  11. Roberto Perotti, 1999. "Fiscal Policy in Good Times and Bad," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1399-1436.
  12. Antonio Afonso, 2004. "Fiscal Sustainability: the Unpleasant European Case," Money Macro and Finance (MMF) Research Group Conference 2004 57, Money Macro and Finance Research Group.
  13. C. John McDermott & Robert F. Wescott, 1996. "An Empirical Analysis of Fiscal Adjustments," IMF Staff Papers, Palgrave Macmillan, vol. 43(4), pages 725-753, December.
  14. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  15. Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
  16. Riccardo Faini, 2006. "Fiscal policy and interest rates in Europe," Economic Policy, CEPR;CES;MSH, vol. 21(47), pages 443-489, 07.
  17. R. Glenn Hubbard & Eric M. Engen, 2004. "Federal Government Debt and Interest Rates," AEI Economics Working Papers 50018, American Enterprise Institute.
  18. Giudice, Gabriele & Turrini, Alessandro Antonio & Veld, Jan in't, 2004. "Non-Keynesian Fiscal Consolidation in the EU? Ex Post Evidence and Ex Ante Analysis," CEPR Discussion Papers 4388, C.E.P.R. Discussion Papers.
  19. David C. Rose & David R. Hakes, 1995. "Deficits and Interest Rates as Evidence of Ricardian Equivalence," Eastern Economic Journal, Eastern Economic Association, vol. 21(1), pages 57-66, Winter.
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