Work

Trigger Points and Budget Cuts: Explaining the Effects of Fiscal Austerity

Year: 1991

Type: report

Abstract: The authors propose and solve an optimizing model that explains counterintuitive effects of fiscal policy in terms of expectations. If government spending follows an upward-trending stochastic process that the public believes may fall sharply when it reaches specific "trigger" points, then optimizing consumption behavior and simple budget-constraint arithmetic imply a nonlinear relationship between private consumption and government spending. Th is theoretical relation is consistent with the experience of several countries. Copyright 1993 by American Economic Association.

Source: National Bureau of Economic Research

DOI: 10.3386/w3844

Authors: Giuseppe Bertola, Allan Drazen

Institutions: Centre for Economic Policy Research, University of Turin, National Bureau of Economic Research, University of Maryland, College Park

Language: English

Topic: Fiscal Policies and Political Economy

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W1558430277

Cites:

Cited by: 401

Related to: 10