scholarly journals Fiscal Consolidation As a Self-Fulfilling Prophecy on Fiscal Multipliers

2015 ◽  
Author(s):  
Hubert Bukowski
Author(s):  
Ben Clift

This chapter charts changing character of the economic ideas informing fiscal policymaking in Britain, and Fund responses to them. Drawing on interviews with the Fund’s UK Missions and UK authorities, it shows how, despite the IMF’s prizing of its non-political, scientific image, its differing views of UK policy space and prioritization became the stuff of a contested politics. The central assumption of the coalition government’s construction of fiscal rectitude was that Britain faced a ‘crisis of debt’, yet the IMF did not share this view. Fund work on fiscal multipliers being higher during recessions, and the adverse effects of fiscal consolidation on growth, all had pointed relevance for UK policy. The coalition government saw little potential for activist fiscal policy in support of growth. In 2013 Blanchard accused the UK authorities of ‘playing with fire’ by pursuing excessively harsh austerity which threatened a prolonged and deep recession.


2019 ◽  
pp. 225-274
Author(s):  
Tom Best ◽  
Oliver Bush ◽  
Luc Eyraud ◽  
M. Belen Sbrancia

If debt is too high, what policies are available to governments to reduce these debt obligations? This chapter goes through all options, short of default. It begins by introducing the standard debt accumulation equation, noting the key terms, such as the growth–interest rate differential; and their relation to policies. Once this is established, the more conventional strategies for reducing debt—promoting growth and fiscal consolidation—are explored. Particular emphasis is given to the impact of fiscal multipliers, and the factors that influence their magnitude. The chapter then moves on to more unconventional policies, such as inflation, seigniorage and financial repression.


2017 ◽  
pp. 193-204
Author(s):  
Francesco Felici ◽  
Francesco Nucci ◽  
Ottavio Ricchi ◽  
Cristian Tegami

2021 ◽  
Author(s):  
Gligor Bishev ◽  
◽  
Aleksandar Stojkov ◽  
Fatmir Besimi ◽  
◽  
...  

The pandemic recession was fundamentally different from ordinary recessions, and thus required a different policy response. We review the empirical literature on fiscal consolidation and fiscal multipliers. Then, we assess the impact of fiscal policies on the pace of recovery and public debt sustainability. A premature or a strong fiscal consolidation might result in lower rates of economic growth and elevated public debt as a share of GDP. We critically analyze different adjustment paths across Europe and offer policy-relevant recommendations. The issue is particularly relevant for countries with a strong fiscal stimulus and moderate to high levels of public debt.


2014 ◽  
Vol 124 (6) ◽  
pp. 953 ◽  
Author(s):  
Christophe Blot ◽  
Marion Cochard ◽  
Jérôme Creel ◽  
Bruno Ducoudré ◽  
Danielle Schweisguth ◽  
...  

2020 ◽  
pp. 21-38
Author(s):  
Mariana Santos

Fiscal multipliers depend on several structural characteristics of each economy. In this study it is argued that labor income tax progressivity lowers the fiscal multipliers of fiscal consolidation programs. By calibrating an incomplete‑ markets, overlapping generations model for the United States for different values of the labor income tax progressivity, it is shown that as progressivity increases the recessionary impacts of fiscal consolidation are lower in the case of consolidation through decrease of government spending and are more recessionary in the case of consolidation financed with tax hikes.


2020 ◽  
pp. 69-89
Author(s):  
Tiago Bernardino

We argue that the relationship between wealth inequality and fiscal multipliers depends crucially on the type of fiscal experiment used, and on the measure of wealth distribution. We calibrate an overlapping generations model with incomplete markets for different European economies and use Household Finance and Consumption Survey (HFCS) data to compare fiscal multipliers when models are calibrated to match the distribution of gross vs. net wealth. We find a negative relationship between fiscal multipliers and wealth inequality when considering fiscal consolidation programs, in contrast to fiscal expansion experiments which are standard in the literature. The underlying mechanism relies on the relationship between the distribution of wealth and the share of credit‑ constrained agents. We examine the role of household balance sheet compositions regarding asset liquidity and find that when calibrating the model to match liquid wealth, the relationship between wealth inequality and fiscal multipliers is much stronger.


2014 ◽  
Vol 61 (1) ◽  
pp. 39-57 ◽  
Author(s):  
Christophe Blot ◽  
Marion Cochard ◽  
Jérôme Creel ◽  
Bruno Ducoudré ◽  
Danielle Schweisguth ◽  
...  

EMU countries have engaged in fiscal consolidation since 2011. This strategy has proven to be costly in terms of GDP. This cost has been amplified by the fact that fiscal multipliers are high in time of crisis, as recently stressed by the literature. Within this context, we wonder whether there is an alternative strategy aiming at bringing back the debt ratio to 60% of GDP in 2032, meanwhile lowering output losses. To this end, we report simulations realized from a simple model describing the Eurozone and the timing for consolidation. Based on a pragmatic view of the fiscal compact, we find an alternative path for consolidation which achieves a 60% threshold for public debt over the next 20 years in most euro area countries.


2013 ◽  
Vol 103 (3) ◽  
pp. 117-120 ◽  
Author(s):  
Olivier J Blanchard ◽  
Daniel Leigh

This paper investigates the relation between growth forecast errors and planned fiscal consolidation during the crisis. We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected. The relation is particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters. The weaker relation in more recent years may in part reflect learning by forecasters and in part smaller multipliers than in the early years of the crisis.


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