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Expansionary Fiscal Austerity : New International Evidence / Ou Nie.
World Bank Open Knowledge Repository (formerly "World Bank E-Library Publications") Available online
View online- Format:
- Book
- Government document
- Author/Creator:
- Nie, Ou.
- Series:
- Policy research working papers.
- World Bank e-Library.
- Language:
- English
- Subjects (All):
- Austerity.
- Debt Burden.
- Debt Sustainability.
- Economic Crisis.
- Economic Shock.
- External Debt.
- Fiscal Adjustment.
- Fiscal Consolidation.
- Fiscal Policy.
- Fiscal Shock.
- International Economics and Trade.
- Macroeconomic Management.
- Macroeconomics and Economic Growth.
- Structural Vector Autoregression.
- Local Subjects:
- Austerity.
- Debt Burden.
- Debt Sustainability.
- Economic Crisis.
- Economic Shock.
- External Debt.
- Fiscal Adjustment.
- Fiscal Consolidation.
- Fiscal Policy.
- Fiscal Shock.
- International Economics and Trade.
- Macroeconomic Management.
- Macroeconomics and Economic Growth.
- Structural Vector Autoregression.
- Physical Description:
- 1 online resource (35 pages)
- Other Title:
- Expansionary Fiscal Austerity
- Place of Publication:
- Washington, D.C. : The World Bank, 2020.
- System Details:
- data file
- Summary:
- The expansionary fiscal contraction (EFC) hypothesis states that fiscal austerity can increase output or consumption when a country is under heavy debt burdens because it sends positive signal about the country's solvency situation and long-term economic wellbeing. Empirical tests of this hypothesis have suffered from identification concerns due to data sources and empirical methodology. Using a sample of OECD countries between 1978 and 2014, this paper combines new IMF narrative data and the proxy structural Vector Auto-regression (SVAR) method to examine whether fiscal austerities can be expansionary when debt levels are high. Fiscal austerities are measured as 1) narrative fiscal shocks and 2) structural shocks from a proxy SVAR. Additionally, this paper uses a model-based approach to determine the cutoff debt level beyond which EFC is expected to be observed. This paper finds empirical evidence in support of the EFC hypothesis for OECD countries: results for output are driven by changes in tax rates and are robust to how one defines a high-debt regime and how one measures austerity.
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