Juha Kilponen et al. Comparing Fiscal Consolidation Multipliers across Models in Europe

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Occasional Papers of Eesti Pank 2/2019

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 Codes: E12, E13, E17, E62, E63.


The views expressed are those of the authors and do not necessarily represent the official views of Eesti Pank or the Eurosystem.