Expansionary contractions and fiscal free lunches: too good to be true?

McManus, R., Ozkan, F. and Trzeciakiewicz, D. (2017) Expansionary contractions and fiscal free lunches: too good to be true? The Scandinavian Journal Of Economics. ISSN 0347-0520.

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Abstract

This paper builds a framework to jointly examine the possibility of both `expansionary fiscal contractions' (austerity increasing output) and fiscal free lunches' (expansions reducing government debt), arguments supported by the austerity and stimulus camps, respectively, in recent debates.

We propose a new metric quantifying the budgetary implications of fiscal action, a key aspect of fiscal policy particularly at the monetary zero lower bound.

We find that austerity needs to be highly persistent and credible to be expansionary, and stimulus temporary, responsive and well-targeted in order to lower debt.

We conclude that neither are likely, especially during periods of economic distress.

Item Type: Article
Uncontrolled Keywords: Fiscal policy; austerity versus stimulus; zero lower bound
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social and Applied Sciences > The Business School
Depositing User: Richard McManus
Date Deposited: 05 Sep 2017 14:05
Last Modified: 29 Oct 2017 15:14
URI: https://create.canterbury.ac.uk/id/eprint/16283

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Last edited: 29/06/2016 12:23:00