Policy Research in Macroeconomics

The Consequences of Fiscal Stimulus on Public Debt: A Historical Perspective

W. D. McCausland and I. Theodossiou
April 2015 (Written October 2014)

Reinforcing the case made in the Prime publication ‘The Economic Consequences of Mr Osborne’ in 2010, this study examines the impact of government stance on public debt for eleven OECD countries from 1881 to 2011. Contrary to traditional predictions, it turns out that over this long historical span, fiscal contractions deteriorated rather than improved public debt as a percentage of GDP. This implies that fiscal austerity exacerbates the lack of demand and deteriorates rather than enhances the prospects of economic recovery.

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