Comparing Fiscal Consolidation Multipliers across Models in Europe

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Title: Comparing Fiscal Consolidation Multipliers across Models in Europe
Author: Kilponen, Juha ; Pisani, Massimiliano ; Schmidt, Sebastian ; Corbo, Vesna ; Hledik, Tibor ; Hollmayr, Josef ; Hurtado, Samuel ; Júlio, Paulo ; Kulikov, Dmitry ; Lemoine, Matthieu ; Lozej, Matija ; Lundvall, Henrik ; Maria, José R. ; Micallef, Brian ; Papageorgiou, Dimitris ; Rysanek, Jakub ; Sideris, Dimitrios ; Thomas, Carlos ; de Walque, Gregory
Series: International Journal of Central Banking
Series number: September 2019
Year of publication: 2019
Publication date: 15.9.2019
Published in: Also available as European Central Bank Working Paper No 1760 2015.
Page range: 285-320
Subject (yso): finanssipolitiikka; julkinen talous; euroalue; taloudelliset mallit
Keywords: Eurooppa; mallit
JEL: E12; E13; E17; E62; E63
Abstract: This paper employs fifteen dynamic macroeconomic models maintained within the European System of Central Banks to assess the macroeconomic effects of a temporary fiscal tightening when the zero lower bound (ZLB) on monetary policy holds for two years. The main results are as follows. First, the ZLB does not greatly affect short-run multipliers in the case of a temporary fiscal tightening implemented in isolation by a generic euro-area (EA) country. Second, the ZLB unfolds quite sizable effects on the size of multipliers if the same fiscal tightening measure is simultaneously implemented in the whole EA. Third, public consumption multipliers are typically larger in absolute value than short-run tax (on labor income, capital income, and consumption) multipliers. Fourth, recessionary effects of the initial fiscal tightening are lower if distortionary taxes are reduced in the medium and long run.

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