Jul 24, 2012

Fiscal multipliers

Vranceanu and Besancenot write in a new paper (July 2012):
When governments loose investors' confidence, additional public spending and the resulting increase in public debt would push-up risk-adjusted interest rates in a more aggressive way. In turn, this would entail a more powerful investment crowding-out. A regression model on a panel of 26 EU countries over the last 16 years shows that a 10 percentage point increase in the debt-to-GDP ratio is connected to a slowdown in annual growth rates of 0.28 percentage point. Furthermore, the effectiveness of fiscal spending is adversely affected by a higher level of debt.
The full title is: "The Fiscal Multiplier in a Time of Massive Public Debt."
The literature on the subject has been growing recentely.

No comments:

Post a Comment