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Author: | Bertola, G. Drazen, A. |
Title: | Trigger points and budget cuts: explaining the effects of fiscal austerity. |
Journal: | American Economic Review
1993 : MAR, VOL. 83:1, p. 11-26 |
Index terms: | FISCAL POLICY BUDGETING CONSUMPTION |
Language: | eng |
Abstract: | An optimizing model explains counterintuitive effects of fiscal policy in terms of expectations. If government spending follows an upward-trending stochastic process which the public believes may fall sharply when it reaches specific "trigger" points, then optimizing consumption behavior and simple budget-constraint arithmetic imply a nonlinear relationship between private consumption and government spending. |
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