Juha Kilponen, Massimiliano Pisani, Sebastian Schmidt, Vesna Corbo, Tibor Hledik, Josef Hollmayr, Samuel Hurtado, Paulo Júlio, Dmitry Kulikov, Matthieu Lemoine, Matija Lozej, Henrik Lundvall, José R. Maria, Brian Micallef, Dimitris Papageorgiou, Jakub Rysanek, Dimitrios Sideris, Carlos Thomas, and Gregory de Walque
Abstract
This paper employs fifteen dynamic macroeconomic models maintained within the European System of Central Banks to assess the macroeconomic effects of a temporary fiscal tightening when the zero lower bound (ZLB) on monetary policy holds for two years. The main results are as follows. First, the ZLB does not greatly affect short-run multipliers in the case of a temporary fiscal tightening implemented in isolation by a generic euro-area (EA) country. Second, the ZLB unfolds quite sizable effects on the size of multipliers if the same fiscal tightening measure is simultaneously implemented in the whole EA. Third, public consumption multipliers are typically larger in absolute value than short-run tax (on labor income, capital income, and consumption) multipliers. Fourth, recessionary effects of the initial fiscal tightening are lower if distortionary taxes are reduced in the medium and long run.
JEL Code: E12, E13, E17, E62, E63.
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