NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Permanent Effects of Fiscal Consolidations

Antonio Fatás, Lawrence H. Summers

NBER Working Paper No. 22374
Issued in June 2016, Revised in August 2016
NBER Program(s):Economic Fluctuations and Growth

The global financial crisis has permanently lowered the path of GDP in all advanced economies. At the same time, and in response to rising government debt levels, many of these countries have been engaging in fiscal consolidations that have had a negative impact on growth rates. We empirically explore the connections between these two facts by extending to longer horizons the methodology of Blanchard and Leigh (2013) regarding fiscal policy multipliers. Our results provide support for the presence of strong hysteresis effects of fiscal policy. The large size of the effects points in the direction of self-defeating fiscal consolidations as suggested by DeLong and Summers (2012). Attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to GDP ratio through their long-term negative impact on output.

download in pdf format
   (175 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22374

Published:

Users who downloaded this paper also downloaded* these:
DePasquale and Stange w22344 Labor Supply Effects of Occupational Regulation: Evidence from the Nurse Licensure Compact
Wehby, Dave, and Kaestner w22373 Effects of the Minimum Wage on Infant Health
Eggertsson, Mehrotra, and Summers w22172 Secular Stagnation in the Open Economy
Bettinger, Gurantz, Kawano, and Sacerdote w22347 The Long Run Impacts of Merit Aid: Evidence from California’s Cal Grant
Ball w20185 Long-Term Damage from the Great Recession in OECD Countries
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us