Born, Benjamin; Müller, Gernot; Pfeifer, Johannes - C.E.P.R. Discussion Papers - 2015
We ask whether cuts of government consumption lower or raise the sovereign default premium. To address this question … sovereign default premia, government consumption, and output. We find that whether austerity pays off depends on a) initial … conditions and b) the time-horizon under consideration. Spending cuts in times of fiscal stress raise default premia, but lower …