Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/119841
Authors: 
Dosi, Giovanni
Napoletano, Andrea
Roventini, Andrea
Treibich, Tania
Year of Publication: 
2014
Series/Report no.: 
LEM Working Paper Series 2014/22
Abstract: 
In this work we analyze the short- and long-run effects of fiscal austerity policies, employing an agent-based model populated by heterogeneous, boundedly-rational firms and banks. The model, in line with the family of "Keynes+Schumpeter" formalism, is able to account for a wide array of macro and micro empirical regularities. In particular, it endogenously generates self-sustained growth patterns together with persistent economic fluctuations punctuated by deep downturns. On the policy side, we find that austerity policies considerably harm the economy, by increasing output volatility, unemployment, and the incidence of crises. In addition, they depress innovation and the diffusion of new technologies, thus reducing long-run productivity and GDP growth. Finally, we show that "discipline-guided" fiscal rules are self-defeating, as they do not stabilize public finances, but, on the contrary, they disrupt them.
Subjects: 
agent-based model
fiscal policy
economic crises
austerity policies
disequilibrium dynamics
JEL: 
C63
E32
E6
G01
G21
O4
Document Type: 
Working Paper

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