2014/22 | LEM Working Paper Series | ||||||||||||||||
The Short- and Long-Run Damages of Fiscal Austerity: Keynes beyond Schumpeter |
|||||||||||||||||
Giovanni Dosi, Mauro Napoletano, Andrea Roventini, Tania Treibich |
|||||||||||||||||
Keywords | |||||||||||||||||
agent-based model, scal policy, economic crises, austerity policies, disequilibrium dynamics
|
|||||||||||||||||
JEL Classifications | |||||||||||||||||
C63, E32, E6, G01, G21, O4
|
|||||||||||||||||
Abstract | |||||||||||||||||
In this work we analyze the short- and long-run effects of fiscal
austerity policies, employing an agent-based model populated by
heterogeneous, boundedly-rational firms and banks. The model, in line
with the family of "Keynes+Schumpeter" formalism, is able to account
for a wide array of macro and micro empirical regularities. In
particular, it endogenously generates self-sustained growth patterns
together with persistent economic fluctuations punctuated by deep
downturns. On the policy side, we find that austerity policies
considerably harm the economy, by increasing output volatility,
unemployment, and the incidence of crises. In addition, they depress
innovation and the diffusion of new technologies, thus reducing
long-run productivity and GDP growth. Finally, we show that
"discipline-guided" fiscal rules are self-defeating, as they do not
stabilize public finances, but, on the contrary, they disrupt them.
|
Downloads
|
|
| |
|
Back
|
|