Austerity: When It Works and When It Doesn't

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Princeton University Press, Feb 19, 2019 - Business & Economics - 296 pages

A timely and incisive look at austerity measures that succeed—and those that don’t

Fiscal austerity is hugely controversial. Opponents argue that it can trigger downward growth spirals and become self-defeating. Supporters argue that budget deficits have to be tackled aggressively at all times and at all costs. In this masterful book, three of today’s leading policy experts cut through the political noise to demonstrate that there is not one type of austerity but many.

Looking at thousands of fiscal measures adopted by sixteen advanced economies since the late 1970s, Austerity assesses the relative effectiveness of tax increases and spending cuts at reducing debt. It shows that spending cuts have much smaller costs in terms of output losses than tax increases. Spending cuts can sometimes be associated with output gains in the case of expansionary austerity and are much more successful than tax increases at reducing the growth of debt. The authors also show that austerity is not necessarily the kiss of death for political careers as is often believed, and provide new insights into the recent cases of European austerity after the financial crisis.

Bringing needed clarity to one of today’s most challenging subjects, Austerity charts a sensible approach based on data analysis rather than ideology.

 

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Contents

1 Introduction
1
2 Theory
17
3 Expansionary and Recessionary Austerity up to the Financial Crisis of 2008
29
4 Measuring the Effects of Fiscal Policy
50
5 Fiscal Plans
64
6 The Data
73
7 The Effects of Austerity
95
8 European Austerity during the Great Recession
117
9 When Austerity?
160
10 Austerity and Elections
175
11 Conclusions
194
A Users Guide
203
Notes
251
References
259
Index
267
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About the author (2019)

Alberto Alesina is the Nathaniel Ropes Professor of Political Economy at Harvard University. He is the author, with Francesco Giavazzi, of The Future of Europe: Reform or Decline. Carlo Favero is the Deutsche Bank Chair in Quantitative Finance and Asset Pricing at Bocconi University in Italy. He is the author of Applied Macroeconometrics. Francesco Giavazzi is professor of economics at Bocconi University.