The Effectiveness of Fiscal Consolidation on the G7 Countries

Since 2007, governments around the world have used expansionary fiscal policies to limit the impact of the recession. However, the full economic implications of this stimulus have yet to be fully analysed. This thesis addresses the impact of the recent recession on the fiscal multipliers of the G7 countries and answers the following research question: ‘to what extent has the recent recession influenced the fiscal multipliers of the G7 countries?’ Both literature and quantitative analyses are conducted in order to provide an answer. In the latter, OLS regression analysis is used. The conclusions show that fiscal multipliers have been affected by the recession. Interestingly, the presence of non-Keynesian effects have been identified. The full extent of this remains country specific, e.g. the multipliers for Japan and the UK have reacted differently. The statistical significance of the results does come into question when interpreting the conclusions. In the future, more research should be conducted to gain a clearer understanding about this topic. Only then will this analysis have more complete answer.