TY  - JOUR
AU  - Fatás, Antonio
AU  - Summers, Lawrence H
TI  - The Permanent Effects of Fiscal Consolidations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 22374
PY  - 2016
Y2  - June 2016
DO  - 10.3386/w22374
UR  - http://www.nber.org/papers/w22374
L1  - http://www.nber.org/papers/w22374.pdf
N1  - Author contact info:
Antonio Fatás
INSEAD
1 Ayer Rajah Avenue
138676 Singapore
Singapore
E-Mail: antonio.fatas@insead.edu

Lawrence H. Summers
Harvard Kennedy School of Government
79 JFK Street
Cambridge, MA 02138
Tel: 617/495-9322
Fax: 617/495-0436
E-Mail: lhs@harvard.edu
M1  - published as Antonio Fatás, Lawrence H. Summers. "The Permanent Effects of Fiscal Consolidations," in Jeffrey Frankel, Hélène Rey, and Charles Engel, organizers, "NBER International Seminar on Macroeconomics 2017" Journal of International Economics (Elsevier), volume 112 (2018)

AB  - The global financial crisis has permanently lowered the path of GDP in all advanced economies. At the same time, and in response to rising government debt levels, many of these countries have been engaging in fiscal consolidations that have had a negative impact on growth rates. We empirically explore the connections between these two facts by extending to longer horizons the methodology of Blanchard and Leigh (2013) regarding fiscal policy multipliers. Our results provide support for the presence of strong hysteresis effects of fiscal policy. The large size of the effects points in the direction of self-defeating fiscal consolidations as suggested by DeLong and Summers (2012). Attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to GDP ratio through their long-term negative impact on output.
ER  -