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Expansionary Austerity New International Evidence

41 Pages Posted: 16 Jul 2011  

Andrea Pescatori

Federal Reserve Bank of Cleveland

Daniel Leigh

International Monetary Fund (IMF)

Jaime Guajardo

International Monetary Fund (IMF)

Date Written: July 2011

Abstract

This paper investigates the short-term effects of fiscal consolidation on economic activity in OECD economies. We examine the historical record, including Budget Speeches and IMFdocuments, to identify changes in fiscal policy motivated by a desire to reduce the budget deficit and not by responding to prospective economic conditions. Using this new dataset, our estimates suggest fiscal consolidation has contractionary effects on private domestic demand and GDP. By contrast, estimates based on conventional measures of the fiscal policy stance used in the literature support the expansionary fiscal contractions hypothesis but appear to be biased toward overstating expansionary effects.

Suggested Citation

Pescatori, Andrea and Leigh, Daniel and Guajardo, Jaime, Expansionary Austerity New International Evidence (July 2011). IMF Working Papers, Vol. , pp. 1-40, 2011. Available at SSRN: https://ssrn.com/abstract=1886910

Andrea Pescatori

Federal Reserve Bank of Cleveland ( email )

1455 E 6th ST
Cleveland, OH 44114
United States

HOME PAGE: http://clevelandfed.org/Research/Economists/index.cfm?action=ShowAuthorPubs&author=676&pagetype=6

Daniel Leigh

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Jaime Guajardo

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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