The literature on fiscal multipliers is far from reaching an agreed upon conclusion about their size and how they might be state contingent. There is so much debate about this issue that Eric Leeper (2010) defined this literature as “alchemy.” One result, however, seems very robust: in OECD economies fiscal consolidations (austerity) based upon expenditure cuts are much less costly than those performed on the tax side. The purpose of this paper is two-fold. First, we review more recent evidence based upon an extension of the narrative method which considers multi-year fiscal plans rather than year-by-year shifts in fiscal variables, likein Romer and Romer (2010) and Guajardo, Leigh, and Pescatori (2014). We shall also document cases of “expansionary austerity,” namely episodes in which even large reductions of government spending were associated on impact with increases in GDP growth first recorded by Giavazzi and Pagano (1990). Second, we illustrate alternative theoretical explanations for our findings about spending versus tax-based consolidations.

What do we know about the effects of austerity ?

Alesina, Alberto
Membro del Collaboration Group
;
Favero, Carlo
Membro del Collaboration Group
;
Giavazzi. Francesco
Membro del Collaboration Group
2018

Abstract

The literature on fiscal multipliers is far from reaching an agreed upon conclusion about their size and how they might be state contingent. There is so much debate about this issue that Eric Leeper (2010) defined this literature as “alchemy.” One result, however, seems very robust: in OECD economies fiscal consolidations (austerity) based upon expenditure cuts are much less costly than those performed on the tax side. The purpose of this paper is two-fold. First, we review more recent evidence based upon an extension of the narrative method which considers multi-year fiscal plans rather than year-by-year shifts in fiscal variables, likein Romer and Romer (2010) and Guajardo, Leigh, and Pescatori (2014). We shall also document cases of “expansionary austerity,” namely episodes in which even large reductions of government spending were associated on impact with increases in GDP growth first recorded by Giavazzi and Pagano (1990). Second, we illustrate alternative theoretical explanations for our findings about spending versus tax-based consolidations.
2018
2018
Alesina, Alberto; Favero, Carlo; Giavazzi, Francesco
File in questo prodotto:
File Dimensione Formato  
PP_2018_1.pdf

non disponibili

Descrizione: Articolo Principale
Tipologia: Documento in Post-print (Post-print document)
Licenza: NON PUBBLICO - Accesso privato/ristretto
Dimensione 52.71 kB
Formato Adobe PDF
52.71 kB Adobe PDF   Visualizza/Apri

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/4008812
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? 21
social impact