Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/98699
Authors: 
Curatola, Giuliano
Donadelli, Michael
Gioffré, Alessandro
Grüning, Patrick
Year of Publication: 
2014
Series/Report no.: 
SAFE Working Paper Series 56
Abstract: 
This paper contributes to the ongoing debate on the relationship between austerity measures and economic growth. We propose a general equilibrium model where (i) agents have recursive preferences; (ii ) economic growth is endogenously driven by investments in R&D; (iii) the government is committed to a zero-deficit policy and finances public expenditures by means of a combination of labor taxes and R&D taxes. We find that austerity measures that rely on reducing resources available to the R&D sector depress economic growth both in the short- and long-run. High debt EU members are currently implementing austerity measures based on higher taxes and/or lower investments in the R&D sector. This casts some doubts on the real ability of these countries to grow over the next years.
Subjects: 
Austerity Measures
Fiscal Policy
Endogenous Growth
R&D
JEL: 
G12
G15
Document Type: 
Working Paper

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