Sebastián Gascón, MiguelGarcía Sánchez, Pablo2023-06-192023-06-192013Auerbach, A. & Gorodnichenko, Y. 2011, “Fiscal Multipliers in Recession and Expansion” NBER Working Papers 17447. Ball, L. & Leigh, D & Loungani, P. 2012, “Okun’s Law: Fit at 50?”, IMF Working Paper. Baum, A. and G.B. Koester, 2011, “The impact of fiscal policy on economic activity over the business cycle–evidence from a threshold VAR analysis”, Deutsche Bundesbank. Discussion Paper-Economic Studies No 3/2011. Baum, A. & Ribeiro, M. P. & Weber, A. 2012, “Fiscal Multipliers and the State of the Economy”, IMF Working Paper WP/12/286. Belke, A. & Klose J. 2011, “Does the ECB rely on a Taylor Rule? - Comparing Ex-Post with Real Time Data”, Ruhr Economic Papers 0133. Blanchard, O. & Leigh, D. 2013, “Growth Forecast Errors and Fiscal Multipliers” IMF Working Paper WP/13/1. Boussard, J. & De Castro, F. & Salto, M. 2012, “Fiscal Multipliers and Public Debt Dynamics in Consolidations”, European Commission Economic Paper 460. Burriel, P., de Castro, F., Garrote, D., Gordo, E., Paredes, J. and Pérez, J.J. 2010, "Fiscal policy shocks in the euro area and the US: an empirical assessment", Fiscal Studies 31(2), 251–285. Delong, J. B. & Summers, H. L. 2012, “Fiscal Policy in a Depressed Economy”, Brooking Papers on Economic Activity. Imbs, J. & Méjean, I. 2010, “Trade Elasticities; A Final Report for the European Commission”, European Commission Economic Paper 432. International Monetary Fund, 2012, “World Economic Outlook; Coping with High Debt and Sluggish Growth”. Romer, C. 2012, “Fiscal Policy in the Crisis: Lessons and Policy Implications”, IMF Fiscal Forum. Sørensen, P & Whitta-Jacobsen, H. 2011, “Introducing Advanced Macroeconomics: Growth and Business Cycles”, McGraw-Hill Education Europe. Woodford, M. 2011, “Simple Analytics of the Government Expenditure Multiplier”, American Economic Journal: Macroeconomics 3.https://hdl.handle.net/20.500.14352/36968This paper investigates the impact that fiscal policy has on economic activity and sovereign debt during economic downturns in the euro area, mainly Germany and Spain. Our theoretical and empirical framework shows that the feasibility of austerity measures depends crucially on the values of the fiscal multipliers. We find that, for the Spanish economy, even if policy makers just focus on the public debt ratio, ignoring output and unemployment, policies of deficit reduction are self-defeating. In fact, counter cyclical policies beat deficit consolidation policies in driving the sovereign debt ratio to a more sustainable path, no matter if shocks are on aggregate supply or aggregate demand. By contrast, in the German case, we cannot reject the hypothesis that austerity may be the proper alternative in a sluggish economy.engbachelor thesishttps://www.ucm.es/fundamentos-analisis-economico2open accessFiscal policyEconomic activityEuro area.Unión económica y monetaria europea (Unión Europea)Indicadores económicos5310.08 Acuerdos Monetarios Internacionales5302.01 Indicadores Económicos