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Four results can be highlighted.

Firstly , the estimation of a threshold cointegration between revenues and expenditures in the euro area between 1980 and 2011 shows that fiscal policy follows a non-linear dynamics, where the restoring forces exerted toward equilibrium only after a sharp deterioration of public deficits and mainly by government spending. Secondly , there is an excessive consolidation regime in which the equilibrium of the model is unstable, if fiscal policy is too restrictive, whatever the behavior of the central bank against inflation. Thirdly , compared to a standard diet, fiscal multipliers are higher when nominal interest rates are constant and that receipts and expenditures do not fit, regardless of the type stimulus and the horizon discount. They reach a value of 2.2 for public consumption at a horizon of five years, a result close to empirical estimates of Auerbach and Gorodnichenko (2012). Fourth , a consolidation that begins during the period of zero nominal interest rates is more effective an adjustment later, reminders for favoring the increase in aggregate demand (but this strategy proved the least effective for promoting revivals supply). This result differs from Corsetti et al. (2010). The difference is that the fiscal adjustment expenses is among these authors, particularly fast. The multiplier is higher when adjustment starts during the zero rate provided that the adjustment is relatively slow.

• Classi cation : JEL: E52, E62, E63.
• Keywords : fiscal policy, monetary policy, fiscal stimulus, fiscal multiplier, Keynesian model.
• Author: Thomas Brand, Finance Department of Economics
• No. 2012-09, November 2012