OECD Journal: Economic Studies

Frequency :
Annual
ISSN :
1995-2856 (online)
ISSN :
1995-2848 (print)
DOI :
10.1787/19952856
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OECD Journal: Economic Studies publishes articles in the area of economic policy analysis, applied economics and statistical analysis, generally with an international or cross-country dimension. While it draws significantly on economic papers produced by the Economics Department and other parts of the OECD Secretariat for the Organisation’s intergovernmental committees, the submission of articles produced by non-OECD authors is encouraged. We also welcome comments on articles previously published in the journal. Now published as part of the OECD Journal package.

Article
 

Fiscal multipliers and prospects for consolidation You do not have access to this content

 
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Author(s):
Ray Barrell, Dawn Holland, Ian Hurst
Publication Date
04 Jan 2013
Pages
3
Bibliographic information
No.:
3,
Volume:
2012,
Issue:
1
Pages
71–102
DOI
10.1787/eco_studies-2012-5k8x6k5wc58x

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This article looks at various aspects of fiscal consolidation in 18 OECD economies. The prospects for fiscal consolidation depend upon the problems a country may face with its debt stock, the political will to deal with these problems and on the costs of consolidation. These costs are a function of the impacts of fiscal policy on the economy, which is the focus of this study. The analysis is based on a series of simulations using the National Institute Global Econometric Model, NiGEM. Fiscal multipliers differ across countries because the structure and behaviour of economies differ. They also differ within countries, depending on factors such as the fiscal instrument implemented, the policy response to fiscal innovations, and expectation formation by economic agents. The purpose of this study is to allow an assessment of the likely impact on the economy and on the fiscal position of consolidation programmes.We decompose the key factors that determine the size of the multiplier by changing them one at a time. Even under a specified set of assumptions, the outturn for the budget balance retains a high degree of uncertainty. We illustrate this uncertainty by calibrating probability bounds around projected debt profiles. This can allow an assessment of the probability of achieving specified fiscal targets, such as those set out in the European Union’s new Fiscal Compact.