Regards 21/12 - Regards sur l’impact des mesures budgétaires

Widespread fiscal consolidation in OECD countries raises two questions, tightly linked to the impact of the policy measures:

-What will be the effect of spending cuts and tax increases on economic activity, namely gross domestic product (GDP)? Economic activity being penalized, the question is whether the impact on Luxembourg GDP of will be strong or weak.

- If the government is considering measures to reduce the deficit by a certain amount, what will be the final impact on the balance of public finances? The effective (ex post) reduction of the deficit may be less than the targeted (ex ante) reduction that ignores the negative impact on economic activity: what will be the magnitude of this discrepancy?

Reflecting on these questions is trying to evaluate the importance of the so-called "fiscal multipliers".