Does austerity pay off?

Konferenzbeitrag

Austerity measures are frequently enacted when the sustainability of public finances is in doubt. Such doubts are reflected in high sovereign yield spreads and put further strain on government finances. Is austerity successful in restoring market confidence, bringing about a reduction in yield spreads? We employ a new panel data set which contains sovereign yield spreads for 26 emerging and advanced economies and estimate the effects of cuts of government consumption on yield spreads and economic activity. The conditions under which austerity takes place are crucial. During times of fiscal stress, spreads rise in response to the spending cuts, at least in the short-run. In contrast, austerity pays off, if conditions are more benign.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Beiträge zur Jahrestagung des Vereins für Socialpolitik 2014: Evidenzbasierte Wirtschaftspolitik - Session: Austerity ; No. D19-V3

Classification and Topics

• Classification: Wirtschaft ; Fiscal Policy ; Business Fluctuations; Cycles ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
• Subject: fiscal policy ; austerity ; sovereign risk ; yield spreads ; confidence ; panel VAR ; local projections

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Born, Benjamin ; Müller, Gernot ; Pfeifer, Johannes
• Event: Veröffentlichung
• (who): ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
• (where): Kiel und Hamburg
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/100301