Expansionary Austerity New International Evidence

This paper investigates the short-term effects of fiscal consolidation on economic activity in OECD economies. We examine the historical record, including Budget Speeches and IMFdocuments, to identify changes in fiscal policy motivated by a desire to reduce the budget deficit and not by responding to prospective economic conditions. Using this new dataset, our estimates suggest fiscal consolidation has contractionary effects on private domestic demand and GDP. By contrast, estimates based on conventional measures of the fiscal policy stance used in the literature support the expansionary fiscal contractions hypothesis but appear to be biased toward overstating expansionary effects.
Publication date: July 2011
ISBN: 9781455294695
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Economics- Macroeconomics , Economics / General , International - Economics , fiscal policy , statistic , fiscal consolidations , equation , surveys , budget deficit , standard error , government spending , fiscal adjustments , spending cuts , budgetary impact , fiscal balance , expansionary fiscal , fiscal contractions , outliers , fiscal variables , tax changes

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