The strong increase of Austrian government debt in the Kreisky era: Austro-Keynesianism or just stubborn forecast errors?

In the Kreisky era (1970–1983), Austrian government debts increased strongly. Historically, the attitude of Kreisky and the Social Democrats towards Keynesian fiscal policy measures to fight unemployment during the oil crises has been held to be responsible for the successive budget deficits. Kreisk...

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Bibliographic Details
Published in:Empirica 2019-05, Vol.46 (2), p.229-248
Main Authors: Brugger, Florian, Kleinert, Jörn
Format: Article
Language:English
Subjects:
Budget deficits
Crises
Debt
Econometrics
Economic models
Economics
Economics and Finance
Errors
European Integration
Fiscal policy
GDP
Gross Domestic Product
Growth rate
Industrial Organization
International Economics
Keynesian theory
Macroeconomics/Monetary Economics//Financial Economics
Original Paper
Petroleum
Public debt
Public Finance
Unemployment
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Summary:In the Kreisky era (1970–1983), Austrian government debts increased strongly. Historically, the attitude of Kreisky and the Social Democrats towards Keynesian fiscal policy measures to fight unemployment during the oil crises has been held to be responsible for the successive budget deficits. Kreisky’s ideological debt policy has become a narrative that has strongly influenced Austrian fiscal policy until today. While this explanation for the strong increase in public debt during the Kreisky era is widely accepted, it is not necessarily true. In this paper, we assess a different explanation: the deficits might simply have resulted from forecast errors of GDP growth in those turbulent times. We find that about one-third of the increase in the debt-over-GDP ratio is directly explained by short-run forecast errors, i.e., the difference between the approved and the realized budget, and an additional one-fifth is the lower bound of forecast error regarding the long-run growth rate.
ISSN:0340-8744
1573-6911
DOI:10.1007/s10663-017-9396-0