HKS Affiliated Authors
Frank and Denie Weil Director of the Mossavar-Rahmani Center for Business and Government
Charles W. Eliot University Professor
Excerpt
Excerpt
The Permanent Effects of Fiscal Consolidations. Lawrence Summers, 2015, Paper, "The global financial crisis has permanently lowered the path of GDP in all advanced economies. At the same time, and in response to rising government debt levels, many of these countries have been engaging in fiscal consolidations that have had a negative impact on growth rates. We empirically explore the connections between these two facts by extending to longer horizons the methodology of Blanchard and Leigh (2013) regarding fiscal policy multipliers. Using data seven years after the beginning of the crisis as well as estimates on potential output our analysis suggests that attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to GDP ratio through their negative impact on output." Link