Small fiscal multipliers do not justify austerity: a macroeconomic accounting analysis of public debt-to-gdp dynamics

Garbellini, Nadia (2014): Small fiscal multipliers do not justify austerity: a macroeconomic accounting analysis of public debt-to-gdp dynamics.

Abstract

In the aftermath of a crisis which has now been lasting for more than five years, the debate about the size of fiscal multipliers arouse. Whatever the estimation approach, fiscal multipliers assumed for projections are the result of extrapolations from time series data. The present contribution aims at taking a different perspective, by answering the following question: is it really necessary to know the value of fiscal multipliers to take sensible policy decisions?

• Item Type: MPRA Paper
• Language: English
• Keywords: Fiscal multipliers, Debt-to-gdp ratio, Consolidation programmes, Eurozone Crisis.
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E62 - Fiscal Policy; H - Public Economics > H6 - National Budget, Deficit, and Debt > H62 - Deficit ; Surplus; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth

References

Berti, K., F. de Castro, and M. Salto. 2013. Effects of fiscal consolidation envisaged in the 2013 Stability and Convergence Programmes on public debt dynamics in EU Member States. European Commission Economic Papers 504.

Blanchard, O. J. and D. Leigh. 2013. Growth Forecast Errors and Fiscal Multipliers. IMF Working Papers.

Blanchard, O. J. and R. Perotti. 2002. An empirical characterization of the dynamic effects of changes in government spending and taxes on output. Quarterly Journal of Economics 117, 1329-1368.

Boussard, J., F. de Castro, and M. Salto. 2012. Fiscal Multipliers and Public Debt Dynamics in Consolidations. European Commission Economic Papers 460.

Council of the European Union. 2010. Council Decision of 19 January 2010 on the existence of an excessive deficit in Italy. Official Journal of the European Union 2010/286/EU.

Council of the European Union. 2013. Council Decision of 21 June 2013 abrogating Decision 2010/286/EU on the existence of an excessive deficit in Italy. Official Journal of the European Union 2013/314/EU.

EFD. 2013. Economic and Financial Document, Section I: Italy's Stability Programme. Rome: Italian Treasury Department.

European Commission, Directorate-General for Economic and Financial Affairs. 2013. The 2013 Stability and Convergence Programmes: An Overview. European Commission Occasional Papers 152.

Favero, C. and F. Giavazzi. 2007. Debt and the effects of fiscal policies. NBER Working Paper 12822.

Girouard, N. and C. André. 2005. Measuring Cyclically-Adjusted Budget Balances for OECD Countries. OECD Economics Department Working Papers 434.

International Monetary Fund. 2010. World Economic Outlook: Rebalancing Growth. Washington, DC: International Monetary Fund, Publication Services.

Mourre, G. et al. 2013. The cyclically-adjusted budget balance used in the EU fiscal framework: an update. European Commission Economic Papers 478.

Pasinetti, L. L. 1998. The Myth (or Folly) of the 3% Deficit/GDP Maastricht "Parameter". Cambridge Journal of Economics 22: 103-116.