Fiscal Consolidation: Part 2. Fiscal Multipliers and Fiscal Consolidations [E-Book] / Ray Barrell, Dawn Holland and Ian Hurst
Barrell, Ray.
Holland, Dawn. / Hurst, Ian.
Paris : OECD Publishing, 2012
43 p. ; 21 x 29.7cm.
OECD Economics Department Working Papers ; 933
Full Text
This paper looks at various aspects of fiscal consolidation in 18 OECD economies. The prospects for fiscal consolidation depend upon the problems the country may face with its debt stock, the political will to deal with these problems and on the costs of consolidation. The analysis is based on a series of simulations using the National Institute Global Econometric Model, NiGEM. The properties of the NiGEM model are discussed first. Although the model is estimated it has a strong role for expectations and can be run under different modes of expectations formation. This allows a decomposition of the factors that might affect the results. Temporary and permanent shifts in fiscal policy are assessed as well as the potential impact of fiscal consolidation plans under different monetary and fiscal feedback rules and different modes of expectations formation. If fiscal policy is expected to be tightened in the future, then long rates will fall now, and perhaps even induce a short-term expansion of output. Expansionary fiscal contractions of this sort are rare, however, and none are anticipated with the programmes that are investigated.