Lagging behind: The Hysteresis of Austerity

Andrea Tafuro*

*Corresponding author for this work

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Abstract

This paper investigates the role of hysteresis in the long-term transmission of consolidations in a panel of 17 OECD countries. The evidence supports that the hysteresis of the labour market is the main driver of consolidations’ long-term effects: an increase in the rigidity of the labour market exacerbates and prolongs the contraction following tax-based consolidations, while it mutes the expansion following expenditure-based consolidations. In contrast, the response of productivity is irrelevant to the presence of the long-term scars.
Original languageEnglish
JournalEmpirical Economics
Volume66
Issue number1
Pages (from-to)327-368
Number of pages42
ISSN0377-7332
DOIs
Publication statusPublished - Jan 2024

Bibliographical note

Published online: 22 June 2023.

Keywords

  • Consolidations
  • Fiscal policy
  • Hysteresis
  • Labour market rigidity
  • Potential growth

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