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Extra Government Debt in the Great Recession: All Intentional?

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  • Riccardo Fiorito

    (University of Siena)

Abstract

Among the Great Recession costs there was the adoption of fiscal policies, generally bounded to increase government debt. In the Oecd area, however, the resulting debt jump was not simply due to counter-cyclical discretion, mostly because of two reasons: the first is that such policies were not always feasible, given the surveillance on the Eurozone countries. The second is the occurrence of an unusual nominal recession, increasing the debt-to-GDP ratio and affecting most Oecd economies in 2009 and the Euro periphery also later. Using a simple accounting scheme, the sources of the debt creation are evaluated during the 2008-13 crisis and the years immediately before (2000-07), comparing the US and the UK with the four biggest Eurozone countries. In general, deficits, inflation and real growth do not have the same role before or during the crisis. Differences are also found for countries pursuing, in special times, more counter-cyclical fiscal policies (US, UK but also Spain and France) and countries like Italy and, especially, Germany following more prudential lines: in one case, because of Italy’s limited fiscal space and, in the other, because of a predilection for stability that Germany maintained even during the most destabilizing, postwar, crisis

Suggested Citation

  • Riccardo Fiorito, 2014. "Extra Government Debt in the Great Recession: All Intentional?," Working Papers LuissLab 14110, Dipartimento di Economia e Finanza, LUISS Guido Carli.
  • Handle: RePEc:lui:lleewp:14110
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    References listed on IDEAS

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    1. Ángel Estrada & Jordi Galí & David López-Salido, 2013. "Patterns of Convergence and Divergence in the Euro Area," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(4), pages 601-630, December.
    2. Fabrizio Coricelli & Riccardo Fiorito, 2013. "Myths and Facts about Fiscal Discretion: A New Measure of Discretionary Expenditure," Documents de travail du Centre d'Economie de la Sorbonne 13033, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    3. Stephen Cecchetti & Madhusudan Mohanty & Fabrizio Zampolli, 2011. "The real effects of debt," BIS Working Papers 352, Bank for International Settlements.
    4. Jonathan A. Parker, 2011. "On Measuring the Effects of Fiscal Policy in Recessions," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 703-718, September.
    5. Valerie A. Ramey, 2011. "Can Government Purchases Stimulate the Economy?," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 673-685, September.
    6. Marc Robinson, 2009. "Accrual budgeting and fiscal policy," OECD Journal on Budgeting, OECD Publishing, vol. 9(1), pages 1-29.
    7. Eisner, Robert & Pieper, Paul J, 1986. "A New View of the Federal Debt and Budget Deficits: Reply," American Economic Review, American Economic Association, vol. 76(5), pages 1156-1157, December.
    8. Mr. Marc Robinson, 2009. "Accrual Budgeting and Fiscal Policy," IMF Working Papers 2009/084, International Monetary Fund.
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    Cited by:

    1. Maria‐Eleni K. Agoraki & Stella Kardara & Tryphon Kollintzas & Georgios P. Kouretas, 2023. "Debt‐to‐GDP changes and the great recession: European Periphery versus European Core," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 3299-3331, July.

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    More about this item

    Keywords

    Government Debt; Recession; Nominal GDP;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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