Post-crisis fiscal cuts boosted solvency without harming liquidity – DNB paper
Dutch paper uses yield spreads to analyse impact of consolidation announcements on investor perception of government solvency
Fiscal consolidation efforts by the Dutch government following the financial crisis enhanced its solvency in the long run, while “hardly affecting” its liquidity in the short run, a working paper by the Netherlands Bank says.
In the wake of the financial crisis, government budget deficits rose substantially, leading many European countries later to implement cuts. The euro area budget deficit, as a result, fell from 6.3% of GDP in 2009 to 1.5% of GDP in 2016.
In his paper, Jasper de Jong
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