Medium-Term Fiscal Multipliers During Protracted Recessions
43 Pages Posted: 31 Dec 2014
Date Written: December 2014
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
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