Uncertain Fiscal Consolidations

33 Pages Posted: 27 Feb 2013

See all articles by Huixin Bi

Huixin Bi

Indiana University Bloomington

Eric M. Leeper

University of Virginia ; Indiana University at Bloomington - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 2013

Abstract

This article explores the macroeconomic consequences of fiscal consolidations whose timing and composition – either tax–or spending– based – are uncertain. We find that the composition of the fiscal consolidation, its duration, the monetary policy stance, the level of government debt, and expectations over the likelihood and composition of fiscal consolidations all matter in determining the extent to which a given consolidation is expansionary or successful in stabilising government debt. We argue that the conditions that could render fiscal consolidation efforts expansionary are unlikely to apply in the current economic environment.

Suggested Citation

Bi, Huixin and Leeper, Eric Michael, Uncertain Fiscal Consolidations (February 2013). The Economic Journal, Vol. 123, Issue 566, pp. F31-F63, 2013. Available at SSRN: https://ssrn.com/abstract=2225645 or http://dx.doi.org/10.1111/ecoj.12011

Huixin Bi (Contact Author)

Indiana University Bloomington ( email )

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HOME PAGE: http://mypage.iu.edu/~hbi/

Eric Michael Leeper

University of Virginia ( email )

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Indiana University at Bloomington - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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