We investigate the macroeconomic effects of fiscal consolidations based upon government spending cuts, transfers cuts and tax hikes. We extend a narrative dataset of fiscal consolidations, with details on over 3500 measures for 16 OECD countries. We show that government spending cuts and cuts in transfers are much less harmful than tax hikes, despite the fact that nondistortionary transfers are not classified as spending. Standard New Keynesian models robustly match our results when fiscal shocks are persistent. Wealth effects on aggregate demand mitigate the impact of a persistent spending cut. Static distortions caused by persistent tax hikes cause larger shifts in aggregate supply under sticky prices.
Background: The coronavirus 2019 (COVID-19) pandemic has been spreading globally for months, yet the infection fatality ratio of the disease is still uncertain. This is partly because of inconsistencies in testing and death reporting standards across countries. We provide estimates which don't rely on official cases and deaths data but only on population level statistics. Methods: We collected demographic and death records data from the Italian Institute of Statistics. We focus on the area in Italy that experienced the initial outbreak of COVID-19 and estimated a Bayesian model fitting age-stratified mortality data from 2020 and previous years. We also assessed the sensitivity of our results to alternative assumptions on the proportion of population infected. Based on our estimates we finally studied the heterogeneity in overall lethality across countries. Findings: We estimate an overall infection fatality rate of 1.31% (95% credible interval [CrI] 0.94 − 1.89), as well as large differences by age, with a low infection fatality rate of 0.05% for under 60 year old (CrI 0 − 0.17) and a substantially higher 4.16% (CrI 3.05 − 5.80) for people above 60 years of age. In our sensitivity analysis, we found that even under extreme assumptions, our method delivered useful information. For instance, even if only 10% of the population were infected, the infection fatality rate would not rise above 0.2% for people under 60. Finally, using data on demographics we show large expected heterogeneity in overall IFR across countries. Interpretation: Our empirical estimates show a sharp difference in fatality rates between young and old people and rule out overall fatality ratios below 0.5% in populations with more than 30% over 60 years old.
The conventional wisdom is (i) that fiscal austerity was the main culprit for the recessions experienced by many countries, especially in Europe, since 2010 and (ii) that this round of fiscal consolidation was much more costly than past ones. The contribution of this paper is a clarification of the first point and, if not a clear rejection, at least it raises doubts on the second. In order to obtain these results we construct a new detailed “narrative” dataset which documents the size and composition of the fiscal plans implemented by several countries over 2009–13. Out of sample simulations, that project output growth conditional only upon the fiscal plans implemented since 2009, do reasonably well in predicting the total output fluctuations of the countries in our sample over the years 2010–13 and are also capable of explaining some of the cross-country heterogeneity in this variable. Fiscal adjustments based on cuts in spending appear to have been much less costly, in terms of output losses, than those based on tax increases. Our results, however, are mute on the question whether the countries we study did the right thing implementing fiscal austerity at the time they did, that is 2009–13.
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