Fiscal Multipliers in the Crisis

As from 2010, as a consequence of the international financial market crisis, a number of countries which had been struggling with budget deficits and high public debt already before the crisis were unable to obtain market financing at viable conditions. In Europe, many highly-indebted countries were induced to secure or restore their credibility with financial markets by adopting fiscal austerity programmes. The advocates of such a policy are convinced that this strategy, while being painful, will eventually yield lasting gains in economic prosperity sooner than a policy inspired by the Keynesian paradigm. By contrast, the "Keynesians" associate with fiscal consolidation in times of crisis only further (unnecessary) sacrifices of output with irreversible income losses. For the sake of avoiding a recession they call for a temporary disregard of the debt pressure and for an increase in fiscal deficits until the danger of recession is averted.