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Risk Aversion and Fiscal Consolidation Programs

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  • Grancini, Stefano

Abstract

In this paper we provide evidence that there are statistical and economically meaningful differences in terms of attitudes towards risk at the aggregate level across countries, as captured by country-specific estimations of the coefficient of relative risk aversion. This has important implications for fiscal policy as it leads to large differences in the output response to the same fiscal policy shock. When calibrating the risk aversion at the country level, using country-specific estimates of the coefficient of relative risk aversion, we find multipliers to the same fiscal consolidation shock to differ as much as between 0.35 and 0.55.

Suggested Citation

  • Grancini, Stefano, 2021. "Risk Aversion and Fiscal Consolidation Programs," MPRA Paper 105500, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:105500
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    More about this item

    Keywords

    CRRA; Fiscal Multipliers; Risk Aversion; Fiscal Consolidation Programs.;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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