Planned Fiscal Consolidations and Growth Forecast Errors -- New Panel Evidence on Fiscal Multipliers

29 Pages Posted: 2 Feb 2016

See all articles by Ansgar Hubertus Belke

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration; IZA Institute of Labor Economics; Centre for European Policy Studies

Dominik Kronen

University of Duisburg-Essen

Thomas Osowski

University of Duisburg-Essen

Date Written: December 21, 2015

Abstract

This paper analyzes the effect of planned fiscal consolidation on GDP growth forecast errors from the years 2010-2013 using cross section analyses and fixed effects estimations. Our main findings are that fiscal multipliers have been underestimated in most instances for the year 2011 while we find little to no evidence for the years 2010 and especially the latter years 2012/13. Since the underestimation of fiscal multipliers seems to have decreased over time, it may indicate learning effects of forecasters. However, the implications for fiscal policy should be considered with caution as a false forecast of fiscal multipliers does not confirm that austerity is the wrong fiscal approach but only suggests a too optimistic assessment of fiscal multipliers for the year 2011.

Keywords: Fiscal multiplier; austerity; growth forecast errors; panel econometrics

JEL Classification: C23, E61, E62, G01

Suggested Citation

Belke, Ansgar Hubertus and Kronen, Dominik and Osowski, Thomas, Planned Fiscal Consolidations and Growth Forecast Errors -- New Panel Evidence on Fiscal Multipliers (December 21, 2015). Ruhr Economic Paper No. 569, Available at SSRN: https://ssrn.com/abstract=2706425 or http://dx.doi.org/10.2139/ssrn.2706425

Ansgar Hubertus Belke

University of Duisburg-Essen - Department of Economics and Business Administration ( email )

Universitätsstr. 9
Essen, 45141
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for European Policy Studies ( email )

1 Place du Congres, 1000
Brussels, 1000
Belgium

Dominik Kronen

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

Thomas Osowski (Contact Author)

University of Duisburg-Essen ( email )

Lotharstrasse 1
Duisburg, 47048
Germany

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