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Expansionary Austerity New International Evidence

Author/Editor: Daniel Leigh | Andrea Pescatori | Jaime Guajardo
Authorized for Distribution: July 1, 2011
Electronic Access: Free Full Text (PDF file size is 1,258KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
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Series: Working Paper No. 11/158
Subject(s): Fiscal consolidation | OECD | Sovereign debt | Taxation
Author's keyword(s): Fiscal policy | taxation | government expenditure | output fluctuations
    Published:   July 1, 2011        
    ISBN/ISSN:   9781455294695/1018-5941   Format:   Paper
    Stock No:   WPIEA2011158   Pages:   40
    Price:   US$18.00
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