Did Fiscal Consolidation Cause the Double Dip Recession in the Euro Area?
Sprache des Vortragstitels:
The Spectre of Stagnation? Europe in the World Economy
Sprache des Tagungstitel:
The paper analyzes the short-run effects of fiscal consolidation measures on economic activity in the euro area during the Euro Crisis. It presents new econometric estimates on the link between cumulative GDP growth and fiscal austerity measures during 2011-2013. The main empirical finding is that the depth of the economic crisis in the euro area's economies is closely related to the harshness of fiscal austerity. The natural interpretation of the econometric results is that multipliers were, on average, higher than 1. According to our calculations, a reasonable approximation of the size of the output losses due to fiscal austerity in the euro area during 2011-2013 is in the range of 5.5% to 8.4% of GDP. Against the background of the macroeconomic and institutional circumstances that prevailed in the euro area over the time period studied, we argue that the cause of the euro area's double dip recession is fiscal consolidation.