Successful Austerity in the United States, Europe and Japan

By Nicoletta Batini, G. Callegari, Giovanni Melina. Social Science Research Network, 2012

314 citations recorded by the source corpus.

The output effects of 2009 fiscal expansions have been hotly debated. But the discussion of fiscal multipliers is even more relevant now that several European countries have had to quickly retract their stimulus measures in an effort to regain market confidence. Using regime-switching VARs we estimate the impact of fiscal adjustment on the United States, Europe and Japan allowing for fiscal multipliers to vary across recessions and booms. We also estimate ex ante probabilities of recessions derived in association with different-sized and different types of consolidation shocks (expenditure- versus tax-based). We use these estimates to understand how consolidations should be designed to be most effective in terms of permanently and rapidly reducing a country’s debt-to-GDP ratio. The main finding is that smooth and gradual consolidations are to be preferred to frontloaded or aggressive consolidations, especially for economies in recession facing high risk premia on public debt, because sheltering growth is key to the success of fiscal consolidation in these cases.

View Paper: https://www.semanticscholar.org/paper/2e97d7ea9a943ddebb42beb8b7b116b1eb0663e3

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Citations in the corpus

• Estimating Fiscal Multipliers: News From A Non‐linear World (2015, unknown): “Following the lead of Blanchard and Perotti (2002), a number of VAR models featuring …scal aggregates and exploiting assumptions on the timing of the impact of …scal shocks have been estimated to compute …scal multipliers. However, the quanti…cation of …scal multipliers with standard linear VARs is ”
• Austerity versus Stimulus? Understanding Fiscal Policy Change at the International Monetary Fund Since the Great Recession (2015, background): “…to Wall Street or Washington, originated in the policy entrepreneurship of international civil servants steeped in the                                                                                                                           7 For an overview of this debate see Batini et al…”
• Fiscal Multipliers and the State of the Economy (2012, unknown): “16 Batini, Callegari, and Melina (2012) explicitly embed the response of monetary policy to a fiscal shock and show that historically, for example in the case of the United States, real interest rates rise instead of falling following a fiscal consolidation.”
• Government Spending Multipliers in Good Times and in Bad: Evidence from US Historical Data (2014, unknown): “(2012), Batini et al. (2012) and Fazzari et al. (2015). We explore the source of difference between our results and those of Fazzari et al.”
• Fiscal developments and financial stress: a threshold VAR analysis (2017, unknown): “Higher multipliers in recessions were also reported in Baum et al. (2012), Batini et al. (2012), Mittnik and Semmler (2012) and others.”