Medium-Term Fiscal Multipliers during Protracted Recessions

The paper examines the consequences of fiscal consolidation in times of persistently lowgrowth and high unemployment by estimating medium-term fiscal multipliers duringprotracted recessions (PR) in a sample of 17 OECD countries. Based on Jorda's (2005)local projection methodology, we find that cumulative fiscal multipliers related to output,employment and unemployment at five-year horizons are significantly above one duringPR episodes. These results suggest that medium-term fiscal consolidation plans to reducepublic debt burdens should proceed gradually if economic activity remains below trendfor a prolonged period.