Expansionary effects of fiscal contractions overstated: IMF paper

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An International Monetary Fund paper, published on Friday, finds existing studies have overstated the benefits of a contractionary fiscal policy on the economy.

The paper's authors, Jaime Guajardo, Daniel Leigh and Andrea Pescatori, investigate the short-term effects of fiscal consolidation on economic activity in OECD economies. The authors are interested in learning about the policy effects that are motivated by a desire to reduce the budget deficit and not by prospective economic conditions.

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