We review the debate surrounding the macroeconomic effects of deficit reduction policies (austerity). The discussion about "austerity" in general has distracted commentators and policymakers from a very important result, namely the enormous difference, on average, between expenditure- and tax-based austerity plans. Spending-based austerity plans are remarkably less costly than tax-based plans. The former have on average a close to zero effect on output and lead to a reduction of the debt over GDP ratio. Tax-based plans have the opposite effect and cause large and long lasting recessions. These results also apply to the recent episodes of European austerity which in this respect were not especially different from previous cases.

Effects of austerity: expenditure- and tax-based approaches

Alesina, Alberto
Membro del Collaboration Group
;
Favero, Carlo
Membro del Collaboration Group
;
Giavazzi, Francesco
Membro del Collaboration Group
2019

Abstract

We review the debate surrounding the macroeconomic effects of deficit reduction policies (austerity). The discussion about "austerity" in general has distracted commentators and policymakers from a very important result, namely the enormous difference, on average, between expenditure- and tax-based austerity plans. Spending-based austerity plans are remarkably less costly than tax-based plans. The former have on average a close to zero effect on output and lead to a reduction of the debt over GDP ratio. Tax-based plans have the opposite effect and cause large and long lasting recessions. These results also apply to the recent episodes of European austerity which in this respect were not especially different from previous cases.
2019
2019
Alesina, Alberto; Favero, Carlo; Giavazzi, Francesco
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/4018671
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