Growth Forecast Errors and Fiscal Multipliers

By Olivier Blanchard, D. Leigh. Social Science Research Network, 2013

1,305 citations recorded by the source corpus.

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, with the relation being 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 reflect in part learning by forecasters and in part smaller multipliers than in the early years of the crisis.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/c3d8cf25d65d5fcaf232427e42df799c993281ef

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Citations in the corpus

Innovation, growth and the transition to net-zero emissions (2021, background): “4 See, for example, Blanchard and Leigh (2013) who highlight how stronger fiscal consolidation was associated with lower growth, particularly in the early years post financial crisis.”
Catching two European birds with one renewable stone: Mitigating climate change and Eurozone crisis by an energy transition (2014, background): “First, they exhibit their most pronounced positive effect when the economy is in a slump, while they are less effective in a growing economy [55–57].”
Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change? (2020, background): “Fiscal injections during such slowdowns have been found to generate multipliers as high as 1.5 to 2 (Auerbach and Gorodnichenko, 2012) or even as high as 2.5 (Blanchard and Leigh, 2013).”
Fiscal Multipliers : Size, Determinants, and Use in Macroeconomic Projections (2014, background): “For example, Blanchard and Leigh (2013) find that the under-estimation of fiscal multipliers early in the crisis contributed significantly to growth forecast errors.”
Fiscal consolidation with tax evasion and corruption (2014, background): “Here, we extend the cross country regressions of Blanchard and Leigh (2013), henceforth BL (2013), controlling for tax evasion and public corruption, and we check the robustness of our conclusions by considering the output effects of narrative consolidation shocks.”