Expansionary Austerity New International Evidence

By D. Leigh, Andrea Pescatori, Jaime Guajardo. Social Science Research Network, 2011

292 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/b0dae8394483d4547fedd77a69ed19b4ee680be3

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Citations in the corpus

The Distributional Effects of Fiscal Consolidation (2013, unknown): “3 See, for example, Alesina and Perotti (1995, 1997), Alesina and Ardagna (2010), Broadbent and Daly (2010), and Guajardo et al. (2011).”
What fiscal policy is most effective? A Meta Regression Analysis (2015, result): “Using cyclically adjusted budget variables in event studies clearly stands out with multipliers close to 0, in line with the critique of this method in Guajardo et al. (2011).”
Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009 (2011, background): “…taxes in the future (Bertola and Drazen 1993).3 Recently, work by the IMF has suggested that austerity measures may be less expansionary than previously thought; they may well have the standard negative Keynesian effects as a result of lower demand (IMF 2010; Pescatori, Leigh, and Guajardo 2011).”
Austerity versus Stimulus? Understanding Fiscal Policy Change at the International Monetary Fund Since the Great Recession (2015, background): “…fiscal policy is genuinely expansionary and that mild and backloaded austerity packages would have fewer contractionary effects than sharp and frontloaded ones (IMF 2010; Ball et al 2011; Guajardo et al 2011; Baum et al 2012; Erceg and Linde 2012; Batini and Melina 2012; Blanchard and Leigh 2013).”
The output effect of fiscal consolidation plans (2015, methodology): “This, admittedly imperfect, approach was criticized by Guajardo et al.(2011) who then set out to build their dataset.”
Marginal Tax Rates and Income: New Time Series Evidence (2013, background): “(2014), Cloyne (2013), Hayo and Uhl (2014) and Leigh et al. (2014), which allows for replication of the results. Second, measuring the long run effects of marginal tax rate changes in US data alone is extremely challenging. However, separating the effects of temporary and permanent tax changes at le”