## How Delaying Fiscal Consolidation Affects the Present Value of GDP

_IMF Working Papers, March 5, 2015_

## Source details

**Canonical URL:** [How Delaying Fiscal Consolidation Affects the Present Value of GDP](https://www.imf.org/en/publications/wp/issues/2016/12/31/how-delaying-fiscal-consolidation-affects-the-present-value-of-gdp-42764)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/31/how-delaying-fiscal-consolidation-affects-the-present-value-of-gdp-42764/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/31/how-delaying-fiscal-consolidation-affects-the-present-value-of-gdp-42764/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/31/how-delaying-fiscal-consolidation-affects-the-present-value-of-gdp-42764/bundle-manifest.json)

## Bibliographic details
- Authors: Kevin Fletcher, Damiano Sandri
- Published: March 5, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498393577.001

---

### Model and core mechanism
- The paper develops a simple model to examine conditions under which delaying fiscal consolidation can affect the present value of GDP via:
  - the fiscal stance’s effects on the output gap, and
  - hysteresis.
- The model focuses on time-variation in fiscal multipliers and contrasts the multiplier during the initial period of fiscal stimulus with the multiplier when the stimulus is withdrawn.

### Principal findings
- The absolute size of the fiscal multiplier is "likely inconsequential" for the effect of delaying consolidation on the present value of GDP.
- What matters is the degree to which the multiplier during the initial stimulus period differs from the multiplier when the stimulus is withdrawn.
- If the multiplier is constant over time, delaying consolidation is unlikely to significantly boost the present value of GDP via effects on the output gap and hysteresis.
- The potential success of delaying consolidation relies on exploiting time-variation in multipliers.

### Policy implications and interpretation
- Policies that delay fiscal consolidation should be evaluated based on expected time-variation in fiscal multipliers rather than on the absolute multiplier value.
- Efforts to raise the present value of GDP by postponing consolidation require conditions where multipliers are larger during the stimulus than when withdrawal occurs.

### Publication and metadata
- Authors: Kevin Fletcher, Damiano Sandri
- Date: March 5, 2015
- Series: Working Paper No. 2015/052
- Issue: 052
- Volume: 2015
- Pages: 31
- DOI: https://doi.org/10.5089/9781498393577.001
- Stock No: WPIEA2015052
- ISBN: 9781498393577
- ISSN: 1018-5941
- Subjects: Fiscal consolidation, Fiscal multipliers, Fiscal stimulus, Output gap, Public debt
- Keywords: debt ratio, fiscal policy, interest rate, potential GDP, WP

*Content based solely on "How Delaying Fiscal Consolidation Affects the Present Value of GDP", IMF Working Papers 2015, 052 (2015).*

---

## Content in this bundle

- **_wp1552**
  - [_wp1552 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2015/_wp1552.pdf.md){rel="alternate" type="text/markdown"}
  - [_wp1552 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2015/_wp1552.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/how-delaying-fiscal-consolidation-affects-the-present-value-of-gdp-42764_