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Fiscal Policy after the Financial Crisis$
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Alberto Alesina and Francesco Giavazzi

Print publication date: 2013

Print ISBN-13: 9780226018447

Published to Chicago Scholarship Online: September 2013

DOI: 10.7208/chicago/9780226018584.001.0001

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The Role of Growth Slowdowns and Forecast Errors in Public Debt Crises

The Role of Growth Slowdowns and Forecast Errors in Public Debt Crises

(p.151) 4 The Role of Growth Slowdowns and Forecast Errors in Public Debt Crises
Fiscal Policy after the Financial Crisis

William Easterly

University of Chicago Press

This chapter presents the simple arithmetic of the relationship between growth slowdowns and debt. This arithmetic indicates an important role for growth in past debt crises in the developing world (HIPC and Latin America in particular), in the Eurozone, and the United States more recently. It shows that when growth forecasts and fiscal policy do not adjust to growth slowdowns, the result is often large forecast errors and budget deficits. A commentary is also included at the end of the chapter.

Keywords:   economic growth, public finance, public spending, GDP ratios, fiscal policy, developing countries, Eurozone, United States

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