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Front-Loaded Stimulus, Back-Loaded Austerity: The Optimal Fiscal Austerity Path and the Risks of Other Routes

EXECUTIVE SUMMARY

The fiscal stimulus implemented by numerous countries during the global recession was a significant factor in warding off further economic decline. However, the stimulus inevitably led to large fiscal deficits in most advanced economies and, in turn, to programs of severe fiscal consolidation.

The question is, how does one balance the trade-off between the benefits that austerity measures have on a country’s debt level with their recessionary and deflationary side effects?

For a number of reasons, the main advanced economies are mostly following sub-optimal fiscal[...]

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