Appendix 2 Contractionary fiscal policy and fiscal multipliers

This appendix reproduces a famous test proposed by Blanchard and Leigh on the effects of "contractionary" policies - or "fiscal consolidation" policies - on the dynamics of GDP after the international great recession of 2008-2009. The results of this test will be commented in the light of the debate on the existence and magnitude of the so called "fiscal multipliers", which represent a specification of the typical Keynesian autonomous expenditure multipliers. Results provide further insights into the evolution of Blanchard's thought and the comparison between his mainstream macroeconomic models and the alternative model, complementing the theoretical analysis presented in this volume.