Fiscal Consolidation During a strongDepressionstrong.pdf

NIESR Fiscal Consolidation During aFiscal Consolidation During a DepressionDepression Nitika Bagaria*, Dawn Holland** and John van Reenen*Nitika Bagaria*, Dawn Holland** and John van Reenen* *London School of Economics*London School of Economics **National Institute of Economic and Social Research**National Institute of Economic and Social Research October 2012October 2012 Project LINK Meeting on the World EconomyProject LINK Meeting on the World Economy National Institute of Social and Economic Research Introduction With no consolidation plans, debt in many EUWith no consolidation plans, debt in many EU economies would be on an unsustainable patheconomies would be on an unsustainable path Timing of fiscal programme mattersTiming of fiscal programme matters –– Consolidation is always contractionaryConsolidation is always contractionary –– During a depression, negative impacts are amplifiedDuring a depression, negative impacts are amplified Presentation extends paper on the UK to considerPresentation extends paper on the UK to consider synchronised consolidation across Europesynchronised consolidation across Europe –– What is the economic impact?What is the economic impact? –– Is it selfIs it self--defeating?defeating? –– How important are fiscal spillovers?How important are fiscal spillovers? National Institute of Social and Economic Research Outline of presentation Analysis based on simulation using the NatioanlAnalysis based on simulation using the Natioanl Institute Global Econometric Model (NiGEM)Institute Global Econometric Model (NiGEM) –– Overview of key features of NiGEM modelOverview of key features of NiGEM model What determines the fiscal multiplier?What determines the fiscal multiplier? Does the state of the economy affect theDoes the state of the economy affect the multiplier?multiplier? How does the fiscal position af