Ruhr Economic Papers

Ruhr Economic Papers #569
Planned Fiscal Consolidations and Growth Forecast Errors - New Panel Evidence on Fiscal Multipliers
by Ansgar Belke, Dominik Kronen and Thomas Osowski
UDE, 09/2015, 27 S./p., 8 Euro, ISBN 978-3-86788-655-0 DOI: 10.4419/86788655
downloadAbstract
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.
JEL-Classification: C23, E61, E62, G01
Keywords: Fiscal multiplier; austerity; growth forecast errors; panel econometrics