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

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journal contribution
posted on 03.07.2018, 10:09 by Richard McManus, Gulcin Ozkan, Dawid Trzeciakiewicz
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.

History

School

  • Business and Economics

Department

  • Economics

Published in

The Scandinavian Journal of Economics

Citation

MCMANUS, R., OZKAN, G. and TRZECIAKIEWICZ, D., 2018. Expansionary contractions and fiscal free lunches: Too good to be true?. The Scandinavian Journal of Economics, 121 (1), pp.32-54.

Publisher

© Wiley-Blackwell

Version

AM (Accepted Manuscript)

Publisher statement

This is the peer reviewed version of the following article: MCMANUS, R., OZKAN, G. and TRZECIAKIEWICZ, D., 2018. Expansionary contractions and fiscal free lunches: Too good to be true?. The Scandinavian Journal of Economics, 121 (1), pp.32-54, which has been published in final form at https://doi.org/10.1111/sjoe.12269. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.

Publication date

2018

ISSN

0347-0520

eISSN

1467-9442

Language

en

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