Of fairies and governments: An ABM evaluation of the expansionary austerity hypothesis
This paper draws on a debate between Robert Skidelsky and Paul Krugman on the expansionary austerity hypothesis as a motivation to build a demand-driven agent-based model. The model features contagion across firms to explore whether fiscal consolidations may become expansionary due to a positive eff...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Emerald Publishing
2020-05-01
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| Series: | EconomiA |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S1517758019300888 |
| _version_ | 1818174975436128256 |
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| author | Adriano dos Reis M. Laureno Oliveira Gilberto Tadeu Lima Laura Carvalho |
| author_facet | Adriano dos Reis M. Laureno Oliveira Gilberto Tadeu Lima Laura Carvalho |
| author_sort | Adriano dos Reis M. Laureno Oliveira |
| collection | DOAJ |
| description | This paper draws on a debate between Robert Skidelsky and Paul Krugman on the expansionary austerity hypothesis as a motivation to build a demand-driven agent-based model. The model features contagion across firms to explore whether fiscal consolidations may become expansionary due to a positive effect on investors’ expectations, which could be the result of a dominant public discourse on the need for austerity. Simulations suggest that while a wave of optimism affecting a small proportion of firms may lead to short-run positive output effects in the economy by raising investment demand, these effects are not sufficient to neutralize the negative macroeconomic impacts of cutting government spending. These findings are in keeping with the scantiness (or absence) of empirical evidence in favor of the expansionary fiscal contraction hypothesis. |
| first_indexed | 2024-12-11T19:52:56Z |
| format | Article |
| id | doaj.art-880ea1ab6cc54d639577ddc175743f05 |
| institution | Directory Open Access Journal |
| issn | 1517-7580 |
| language | English |
| last_indexed | 2024-12-11T19:52:56Z |
| publishDate | 2020-05-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | EconomiA |
| spelling | doaj.art-880ea1ab6cc54d639577ddc175743f052022-12-22T00:52:43ZengEmerald PublishingEconomiA1517-75802020-05-01212233254Of fairies and governments: An ABM evaluation of the expansionary austerity hypothesisAdriano dos Reis M. Laureno Oliveira0Gilberto Tadeu Lima1Laura Carvalho2Corresponding author.; Department of Economics, University of São PauloDepartment of Economics, University of São PauloDepartment of Economics, University of São PauloThis paper draws on a debate between Robert Skidelsky and Paul Krugman on the expansionary austerity hypothesis as a motivation to build a demand-driven agent-based model. The model features contagion across firms to explore whether fiscal consolidations may become expansionary due to a positive effect on investors’ expectations, which could be the result of a dominant public discourse on the need for austerity. Simulations suggest that while a wave of optimism affecting a small proportion of firms may lead to short-run positive output effects in the economy by raising investment demand, these effects are not sufficient to neutralize the negative macroeconomic impacts of cutting government spending. These findings are in keeping with the scantiness (or absence) of empirical evidence in favor of the expansionary fiscal contraction hypothesis.http://www.sciencedirect.com/science/article/pii/S1517758019300888Expansionary Fiscal ConsolidationContagionConfidenceABMKeynesian Macroeconomics |
| spellingShingle | Adriano dos Reis M. Laureno Oliveira Gilberto Tadeu Lima Laura Carvalho Of fairies and governments: An ABM evaluation of the expansionary austerity hypothesis EconomiA Expansionary Fiscal Consolidation Contagion Confidence ABM Keynesian Macroeconomics |
| title | Of fairies and governments: An ABM evaluation of the expansionary austerity hypothesis |
| title_full | Of fairies and governments: An ABM evaluation of the expansionary austerity hypothesis |
| title_fullStr | Of fairies and governments: An ABM evaluation of the expansionary austerity hypothesis |
| title_full_unstemmed | Of fairies and governments: An ABM evaluation of the expansionary austerity hypothesis |
| title_short | Of fairies and governments: An ABM evaluation of the expansionary austerity hypothesis |
| title_sort | of fairies and governments an abm evaluation of the expansionary austerity hypothesis |
| topic | Expansionary Fiscal Consolidation Contagion Confidence ABM Keynesian Macroeconomics |
| url | http://www.sciencedirect.com/science/article/pii/S1517758019300888 |
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