Austerity, Fiscal Uncertainty, and Economic Growth: Insights from Fiscally Weak EU Countries
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Datum
2014-08-08
Autor
Curatola, Giuliano
Donadelli, Michael
Gioffré, Alessandro
Grüning, Patrick
SAFE No.
56
Metadata
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Zusammenfassung
Recent empirical evidence suggests that during the last years fiscally weak European countries significantly cut their R&D budgets in an effort to reduce their deficit, according to the spirit of the Fiscal Compact. We propose a general equilibrium model that endogenously captures the trade-off between costs and benefits of austerity measures driven by a zero-deficit policy. Our analysis suggests that cuts in R&D spending undermine economic growth both in the short and the long run. We use our model to estimate the reduction of economic growth due to R&D cuts implemented by fiscally weak European countries during the period 2010-2012. The model predicts a reduction in real growth by 0.63%, 2.93%, and 4.46%, in the next 1, 5, and 10 years, respectively. Moreover, we show that the zero-deficit constraint hampers economic growth in the presence of either a productivity drop or a spending stimulus.
Forschungsbereich
Financial Markets
Schlagworte
austerity measures, fiscal policy, endogenous growth, r&d
JEL-Klassifizierung
E21, E23, E62, G18
Forschungsdaten
Thema
Corporate Governance
Macro Finance
Fiscal Stability
Macro Finance
Fiscal Stability
Beziehungen
1
Publikationstyp
Working Paper
Link zur Publikation
Collections
- LIF-SAFE Working Papers [334]