Effects of Fiscal Tightening on Growth

In a Peterson Institute policy brief, Paolo Mauro and Jan Zilinsky argue that

the evidence is mixed: Those who hold a prior that fiscal adjustment is harmful for growth may find their beliefs confirmed, whereas those who believe a prior that the link is weak may find the evidence unconvincing (even aside from valid concerns about causality). To the extent that the case of Greece involves unique features beyond large fiscal adjustment, the data reveal that drawing conclusions from empirical associations that include this specific case requires caution.