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Abstract
We have examined the fiscal consolidation episodes in a group of OECD countries from 2009 to 2014. The range of the estimated short-term fiscal multiplier runs from 1.2 to 2.0, larger than those obtained in more ‘normal times’, implying that the contractionary effect has been larger in depressed environments. Nevertheless, we also found that revenue measures have a higher and more persistent real impact than expenditure measures, which is more consistent with the influence of current consolidations on the expectations about the future path of fiscal policies (the expectations channel). This result suggests that expenditure cuts are less harmful for the economy than tax hikes.
Keywords: E12; E62; E63; H12
Journal Article. 9014 words. Illustrated.
Subjects: General Aggregative Models ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook ; Public Economics
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