Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/147998
Authors: 
Klein, Mathias
Year of Publication: 
2016
Series/Report no.: 
DIW Discussion Papers 1611
Abstract: 
This study provides empirical evidence that the costs of austerity crucially depend on the level of private indebtedness. In particular, fiscal consolidations lead to severe contractions when implemented in high private debt states. Contrary, fiscal consolidations have no significant effect on economic activity when private debt is low. These results are robust to alternative definitions of private debt overhang, the composition of fiscal consolidations and controlling for the state of the business cycle and government debt overhang. I show that deterioration in household balance sheets is important to understand private debt-dependent effects of austerity.
Subjects: 
Fiscal consolidation
Private debt
Local projection
JEL: 
C23
E32
E62
Document Type: 
Working Paper

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