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Expansionary contractions and fiscal free lunches: too good to be true?
McManus, R. Ozkan, F.G. Trzeciakiewicz, Dawid
McManus, R.
Ozkan, F.G.
Trzeciakiewicz, Dawid
Publication Date
2019-01
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© The editors of The Scandinavian Journal of Economics 2017. This is the peer reviewed version of the following article: [Mcmanus M, Ozkan FG and Trzeciakiewicz D (2019) Expansionary contractions and fiscal free lunches: too good to be true? The Scandinavian Journal of Economics. 121(1): 32-54.], which has been published in final form at http://dx.doi.org/10.1111/sjoe.12269. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
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11/05/2017
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Abstract
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.
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Mcmanus M, Ozkan FG and Trzeciakiewicz D (2019) Expansionary contractions and fiscal free lunches: too good to be true? The Scandinavian Journal of Economics. 121(1): 32-54.
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