Medium-Term Fiscal Multipliers During Protracted Recessions

43 Pages Posted: 31 Dec 2014

See all articles by Salvatore Dell'Erba

Salvatore Dell'Erba

University of Geneva - Graduate Institute of International Studies (HEI)

Ksenia Koloskova

International Monetary Fund (IMF)

Marcos Poplawski-Ribeiro

International Monetary Fund (IMF)

Date Written: December 2014

Abstract

The paper examines the consequences of fiscal consolidation in times of persistently low growth and high unemployment by estimating medium-term fiscal multipliers during protracted recessions (PR) in a sample of 17 OECD countries. Based on Jorda's (2005) local projection methodology, we find that cumulative fiscal multipliers related to output,employment and unemployment at five-year horizons are significantly above one during PR episodes. These results suggest that medium-term fiscal consolidation plans to reduce public debt burdens should proceed gradually if economic activity remains below trend for a prolonged period.

Keywords: Economic recession, Fiscal stimulus and multipliers, Fiscal consolidation, Employment, Unemployment, Labor markets, Economic growth, OECD, Developed countries, fiscal consolidations, cumulative multipliers, labour market, protracted recessions, economy, business cycle

JEL Classification: E32, E62, H20, H50, J40

Suggested Citation

Dell'Erba, Salvatore and Koloskova, Ksenia and Poplawski-Ribeiro, Marcos, Medium-Term Fiscal Multipliers During Protracted Recessions (December 2014). IMF Working Paper No. 14/213. Available at SSRN: https://ssrn.com/abstract=2544211

Salvatore Dell'Erba (Contact Author)

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

Avenue de la paix 11A
Geneva, CH-1202
Switzerland

Ksenia Koloskova

International Monetary Fund (IMF) ( email )

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

Marcos Poplawski-Ribeiro

International Monetary Fund (IMF) ( email )

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

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