IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Fiscal consolidation in times of crisis: is the sooner really the better?

  • Christophe Blot

    (OFCE)

  • Marion Cochard

    (OFCE (OFCE))

  • Jérôme Creel

    (OFCE)

  • Bruno Ducoudré

    (OFCE)

  • Danielle Schweisguth

    (OFCE)

  • Xavier Timbeau

    (OFCE)

Recent evidence has renewed views on the size of fiscal multipliers. It is notably emphasized that fiscal multipliers are higher in times of crisis. Starting from this literature, we develop a simple and tractable model to deal with the fiscal strategy led by euro area countries. Constrained by fiscal rules and by speculative attacks in financial markets, euro area members have adopted restrictive fiscal policies despite strong negative output gaps. Based on the model, we present simulations to determine the path of public debt given the current expected consolidation. Our simulations suggest that despite strong austerity measures, not all countries would be able to reach the 60% debt-to-GDP. If fiscal multipliers vary along the business cycle, this would give a strong case for delaying austerity. This alternative scenario is considered. Our results show not only that delaying austerity would improve growth perspectives and would not be incompatible with public debt converging to 60% of GDP.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://spire.sciencespo.fr/hdl:/2441/2g7mhju69b94obeaqlen09s1au/resources/artcbmcjcbddsxt-r132.pdf
Download Restriction: no

Paper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/2g7mhju69b94obeaqlen09s1au.

as
in new window

Length:
Date of creation: Apr 2014
Date of revision:
Publication status: Published in Revue de l'OFCE - Débats et politiques, 2014, pp.159-192
Handle: RePEc:spo:wpmain:info:hdl:2441/2g7mhju69b94obeaqlen09s1au
Contact details of provider: Web page: http://www.sciencespo.fr/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Alan J. Auerbach & Yuriy Gorodnichenko, 2010. "Measuring the Output Responses to Fiscal Policy," NBER Working Papers 16311, National Bureau of Economic Research, Inc.
  2. G�nter Coenen & Christopher J. Erceg & Charles Freedman & Davide Furceri & Michael Kumhof & Ren� Lalonde & Douglas Laxton & Jesper Lind� & 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.
  3. Jér�me Creel & Paola Monperrus-Veroni & Francesco Saraceno, 2009. "On The Long-Term Effects Of Fiscal Policy In The United Kingdom: The Case For A Golden Rule," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(5), pages 580-607, November.
  4. António Afonso, 2006. "Expansionary fiscal consolidations in Europe: new evidence," Working Papers Department of Economics 2006/18, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  5. J. A. Carrillo & C. Poilly, 2012. "How do financial frictions affect the spending multiplier during a liquidity trap?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/779, Ghent University, Faculty of Economics and Business Administration.
  6. Burriel, Pablo & de Castro Fernández, Francisco & Garrote, Daniel & Gordo, Esther & Paredes, Joan & Pérez, Javier J., 2009. "Fiscal policy shocks in the euro area and the US: an empirical assessment," Working Paper Series 1133, European Central Bank.
  7. Olivier J. Blanchard & Daniel Leigh, 2013. "Growth Forecast Errors and Fiscal Multipliers," NBER Working Papers 18779, National Bureau of Economic Research, Inc.
  8. Corsetti, Giancarlo & Kuester, Keith & Meier, André & Müller, Gernot, 2013. "Sovereign risk and belief-driven fluctuations in the euro area," CEPR Discussion Papers 9723, C.E.P.R. Discussion Papers.
  9. Pascal Michaillat, 2012. "Fiscal Multipliers over the Business Cycle," CEP Discussion Papers dp1115, Centre for Economic Performance, LSE.
  10. Alesina, Alberto & Perotti, Roberto, 1996. "Fiscal Discipline and the Budget Process," American Economic Review, American Economic Association, vol. 86(2), pages 401-07, May.
  11. Shiller, Robert J, 1979. "The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1190-1219, December.
  12. Steven Fazzari & James Morley & Irina Panovska, 2013. "State-Dependent Effects of Fiscal Policy," Discussion Papers 2012-27B, School of Economics, The University of New South Wales.
  13. 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.
  14. Michael T. Owyang & Valerie A. Ramey & Sarah Zubairy, 2013. "Are Government Spending Multipliers Greater During Periods of Slack? Evidence from 20th Century Historical Data," NBER Working Papers 18769, National Bureau of Economic Research, Inc.
  15. Alberto Alesina & Carlo Favero & Francesco Giavazzi, 2013. "The output effect of fiscal consolidations," Working Papers 478, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  16. Jérôme Creel & Bruno Ducoudré & Catherine Mathieu & Henri Sterdyniak, 2005. "Doit-on oublier la politique budgétaire? Une analyse critique de la nouvelle théorie anti-keynésienne des finances publiques," Sciences Po publications info:hdl:2441/1769, Sciences Po.
  17. Christopher J. Erceg & Jesper Linde, 2012. "Fiscal Consolidation in an Open Economy," American Economic Review, American Economic Association, vol. 102(3), pages 186-91, May.
  18. Radu Vranceanu & Damien Besancenot, 2012. "The spending multiplier in a time of massive public debt : the euro area case," CEPN Working Papers hal-00728230, HAL.
  19. Lawrence J. Christiano & Martin Eichenbaum & Sergio Rebelo, 2010. "When is the government spending multiplier large?," CQER Working Paper 2010-01, Federal Reserve Bank of Atlanta.
  20. J. Bradford DeLong & Lawrence H. Summers, 2012. "Fiscal Policy in a Depressed Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 44(1 (Spring), pages 233-297.
  21. Alberto Alesina & Silvia Ardagna, 2010. "Large Changes in Fiscal Policy: Taxes versus Spending," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 35-68 National Bureau of Economic Research, Inc.
  22. repec:thk:rnotes:3 is not listed on IDEAS
  23. Perotti, Roberto, 1996. "Fiscal Consolidation in Europe: Composition Matters," American Economic Review, American Economic Association, vol. 86(2), pages 105-10, May.
  24. Jérôme Creel & Éric Heyer & Mathieu Plane, 2011. "Petit précis de politique budgétaire par tous les temps. Les multiplicateurs budgétaires au cours du cycle," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(1), pages 61-88.
  25. Woodford, Michael, 2010. "Simple Analytics of the Government Expenditure Multiplier," CEPR Discussion Papers 7704, C.E.P.R. Discussion Papers.
  26. Bohn, Henning, 2007. "Are stationarity and cointegration restrictions really necessary for the intertemporal budget constraint?," Journal of Monetary Economics, Elsevier, vol. 54(7), pages 1837-1847, October.
  27. Jocelyn Boussard & Francisco de Castro & Matteo Salto, 2012. "Fiscal Multipliers and Public Debt Dynamics in Consolidations," European Economy - Economic Papers 460, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  28. Robert E. Hall, 2009. "By How Much Does GDP Rise if the Government Buys More Output?," NBER Working Papers 15496, National Bureau of Economic Research, Inc.
  29. Alvaro Angeriz & Philip Arestis, 2009. "The consensus view on interest rates and fiscal policy: reality or innocent fraud?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 31(4), pages 567-586, July.
  30. Jonathan A. Parker, 2011. "On Measuring the Effects of Fiscal Policy in Recessions," NBER Working Papers 17240, National Bureau of Economic Research, Inc.
  31. Mittnik, Stefan & Semmler, Willi, 2012. "Regime dependence of the fiscal multiplier," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 502-522.
  32. repec:thk:rnotes:6 is not listed on IDEAS
  33. Baum, Anja & Koester, Gerrit B., 2011. "The impact of fiscal policy on economic activity over the business cycle - evidence from a threshold VAR analysis," Discussion Paper Series 1: Economic Studies 2011,03, Deutsche Bundesbank, Research Centre.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:spo:wpmain:info:hdl:2441/2g7mhju69b94obeaqlen09s1au. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Spire @ Sciences Po Library)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.