ECB study casts doubt on wisdom of more stimulus
The EU’s central bank argues against spending more government cash (via taxpayers) to boost economies:
Finally, our results indicate that rising government debt is the main reason for declining spending multipliers at longer horizons, and thus increasingly negative long-run consequences of fiscal expansions. In the spirit of Giavazzi and Pagano (1990) and Giavazzi, Jappelli, and Pagano (2000), we interpret this finding as an indication that further accumulating debt after a spending shock leads to rising concerns on the sustainability of public finances. In this context, agents may expect larger fiscal consolidation in the future which, in turn, depresses private demand and output.
Me: The study also found that each $1 of government stimulus spending only produces 50 cents of GDP growth.