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Post-crisis Fiscal Policy$
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Carlo Cottarelli, Philip Gerson, and Abdelhak Senhadji

Print publication date: 2014

Print ISBN-13: 9780262027182

Published to MIT Press Scholarship Online: September 2015

DOI: 10.7551/mitpress/9780262027182.001.0001

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Fiscal Adjustment, Growth, and Global Imbalances

Fiscal Adjustment, Growth, and Global Imbalances

(p.535) 20 Fiscal Adjustment, Growth, and Global Imbalances
Post-crisis Fiscal Policy

Mika Kortelainen

Douglas Laxton

Jack Selody

The MIT Press

Using the International Monetary Fund's Global Integrated Monetary and Fiscal Model (GIMF), this chapter examines how combining fiscal adjustment with structural reform and coordinated fiscal policy can reduce public debt, encourage economic growth, and lower global imbalances for all participating countries. It first considers the virtuous circle that can be generated when fiscal consolidation is accompanied by productivity-enhancing structural reform and monetary easing before discussing the specifics of the hypothetical policy actions put into the GIMF and the key features of the model in which the coordinated policy actions are embedded. It then reviews previous studies of the macroeconomic effects of fiscal consolidation. It shows that fiscal consolidation is typically associated with shrinking current-account deficits and slowing growth, but that structural and fiscal reform creates the potential for the world economy to grow while rebalancing global demand. The chapter also illustrates the potential for a virtuous circle to arise.

Keywords:   fiscal consolidation, structural reform, fiscal policy, public debt, economic growth, Global Integrated Monetary and Fiscal Model, monetary easing, current-account deficits, fiscal reform, fiscal adjustment

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