TY  - JOUR
AU  - Bertola,Giuseppe
AU  - Drazen,Allan
TI  - Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3844
PY  - 1991
Y2  - September 1991
UR  - http://www.nber.org/papers/w3844
L1  - http://www.nber.org/papers/w3844.pdf
N1  - Author contact info:
Giuseppe Bertola
Dipartimento di Economia, Università di Torino
Via Po 53
I-10124 Torino
Italy
E-Mail: giuseppe.bertola@unito.it

Allan Drazen
Department of Economics
University of Maryland
College Park, MD 20742
Tel: 301/405-3477
Fax: 301/405-7835
E-Mail: drazen@econ.umd.edu
AB  - We propose and solve an optimizing model which explains counterintuitive effects of fiscal policy in terms of expectations. If government spending follows an upward-trending stochastic process which the public believes may fall sharply when it reaches specific "target points," then optimizing consumption behavior and simple budget constraint arithmetic imply a nonlinear relationship between private consumption and government spending. This theoretical relation is consistent with the experience of several countries.
ER  -