Abstract
The large fiscal adjustment undertaken in many advanced economies in recent years has stimulated renewed interest in the effects of fiscal policy on economic activity. To measure these effects, one needs to make an assumption about the size (and the persistence) of fiscal multipliers.1 A number of recent empirical studies have demonstrated that fiscal multipliers may be significantly higher in economic downturns than in expansions (see for instance, Auerbach and Gorodnichenko, 2011, Baum and Koester, 2011, Batini et al., 2012, Blanchard and Leigh, 2013). In a nutshell, while the earlier literature suggests an average first-year (i.e., impact) fiscal multiplier of around 0.6 for advanced economies, there are strong reasons to believe that in the current environment the multiplier may be closer to 1 and, in certain cases, even higher than that.2
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Monokroussos, P. (2015). The Challenge of Restoring Debt Sustainability in a Deep Economic Recession: The Case of Greece. In: Thomakos, D.D., Monokroussos, P., Nikolopoulos, K.I. (eds) A Financial Crisis Manual. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, London. https://doi.org/10.1057/9781137448309_9
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DOI: https://doi.org/10.1057/9781137448309_9
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