Sovereign spreads and the effects of fiscal austerity

• 成果类型: Article
• 署名作者: Anzoategui, Diego
• 署名单位: Rutgers University System; Rutgers University New Brunswick
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2022.103658
• 发表日期: 2022
• 关键词: Sovereign default; fiscal austerity

摘要

I analyze the impact of austerity on sovereign spreads. To do so I propose a model with stra-tegic sovereign default and nominal rigidities, where the government follows fiscal rules, which are estimated from data. I first study theoretical implications and find that austerity can increase sovereign spreads, or be self-defeating, only when the decrease in government spending is persistent and the economy is expected to be in a recession with high fiscal mul-tipliers. I then calibrate the model and use it to predict what would have happened to spreads and economic activity if Spain had continued to follow its pre-2010 fiscal rule instead of switching to the austerity track. I find that, relative to the counter-factual, austerity decreased sovereign spreads and debt-to-GDP ratios. Overall, I find that the likelihood of self-defeating austerities depends on the magnitude of fiscal multipliers and fiscal policy, but it is generally low. (c) 2022 Elsevier B.V. All rights reserved.