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Growth Forecast Errors and Government Investment and Consumption Multipliers

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We compare the government investment and government consumption multipliers in the advanced economies during the recent ?scal consolidation, folloeing the Blanchard and Leigh (2013) approach. We find that, in the highly-indebted countries, the investment multplier is likely to be much higher than what has been assumed by the policy makers and much higher that the consumption multiplier. This points out that the consolidation should be accompanied by increased public investment.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 301.

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Length: 25 pages
Date of creation: 17 Dec 2013
Date of revision: 17 Dec 2013
Handle: RePEc:rtv:ceisrp:301
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  1. Roberto Perotti, 2012. "The "Austerity Myth": Gain without Pain?," NBER Chapters,in: Fiscal Policy after the Financial Crisis, pages 307-354 National Bureau of Economic Research, Inc.
  2. Christiane Nickel & Andreas Tudyka, 2014. "Fiscal Stimulus in Times of High Debt: Reconsidering Multipliers and Twin Deficits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(7), pages 1313-1344, October.
  3. Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," American Economic Review, American Economic Association, vol. 103(3), pages 117-120, May.
  4. StevenN. Durlauf & Andros Kourtellos & ChihMing Tan, 2008. "Are Any Growth Theories Robust?," Economic Journal, Royal Economic Society, vol. 118(527), pages 329-346, 03.
  5. Roberto Perotti, 1999. "Fiscal Policy in Good Times and Bad," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1399-1436.
  6. Alan J. Auerbach & Yuriy Gorodnichenko, 2012. "Measuring the Output Responses to Fiscal Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(2), pages 1-27, May.
  7. Fernandez, Carmen & Ley, Eduardo & Steel, Mark F. J., 2001. "Benchmark priors for Bayesian model averaging," Journal of Econometrics, Elsevier, vol. 100(2), pages 381-427, February.
  8. Markus Kirchner & Jacopo Cimadomo & Sebastian Hauptmeier, 2010. "Transmission of Government Spending Shocks in the Euro Area: Time Variation and Driving Forces," Tinbergen Institute Discussion Papers 10-021/2, Tinbergen Institute.
  9. Ilzetzki, Ethan & Mendoza, Enrique G. & Végh, Carlos A., 2013. "How big (small?) are fiscal multipliers?," Journal of Monetary Economics, Elsevier, vol. 60(2), pages 239-254.
  10. Roberto Perotti, 2011. "The "Austerity myth": Gain Without Pain?," BIS Working Papers 362, Bank for International Settlements.
  11. Branimir Jovanovic, 2012. "How Policy Actions Affect Short-term Post-crisis Recovery?," CEIS Research Paper 253, Tor Vergata University, CEIS, revised 05 Oct 2012.
  12. Günter Coenen & Christopher J. Erceg & Charles Freedman & Davide Furceri & Michael Kumhof & René Lalonde & Douglas Laxton & Jesper Lindé & Annabelle Mourougane & Dirk Muir & Susanna Mursula & Carlos d, 2012. "Effects of Fiscal Stimulus in Structural Models," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(1), pages 22-68, January.
  13. Daniel Leigh & Andrea Pescatori & Jaime Guajardo, 2011. "Expansionary Austerity New International Evidence," IMF Working Papers 11/158, International Monetary Fund.
  14. Roberto Perotti, 2011. "The "Austerity Myth": Gain without Pain?," Working Papers 430, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  15. Liang, Feng & Paulo, Rui & Molina, German & Clyde, Merlise A. & Berger, Jim O., 2008. "Mixtures of g Priors for Bayesian Variable Selection," Journal of the American Statistical Association, American Statistical Association, vol. 103, pages 410-423, March.
  16. Perotti, Roberto, 2011. "The "Austerity Myth": Gain without Pain?," CEPR Discussion Papers 8658, C.E.P.R. Discussion Papers.
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