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Erscheinungsjahr: 
2015
Schriftenreihe/Nr.: 
ECB Occasional Paper No. 162
Verlag: 
European Central Bank (ECB), Frankfurt a. M.
Zusammenfassung: 
This paper seeks to link the debate surrounding short-term fiscal multipliers with the medium and longer-term impact of fiscal consolidation on public debt sustainability. A literature review and empirical findings for state-dependent multipliers confirm that there is considerable uncertainty surrounding the size of the short-term multiplier. Notably, multipliers may be larger in deep recessions or financial crises, but the negative impact of fiscal consolidation is mitigated when public finances are weak. Using a stylised framework and a range of plausible values for the fiscal multiplier, simulations suggest that an increase in the debt ratio following episodes of fiscal consolidation is likely to be short-lived. Even in a macroeconomic context in which multipliers are high, a front-loaded fiscal consolidation reduces the total consolidation effort and implies a faster stabilisation of the debt ratio. In general, back-loading is subject to higher implementation risks, most notably in the light of political economy considerations. Overall, when determining the fiscal adjustment path, both the short-term costs and the longer-term benefits need to be taken into account. Particular attention should be paid to the composition of consolidation packages, with well-designed adjustments likely to imply a faster stabilisation of the debt ratio.
Schlagwörter: 
fiscal policies
Government debt
Macroeconomic Aspects of Public Finance
Sustainability
JEL: 
H30
H6
E6
Dokumentart: 
Research Report

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