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- Title
Effects of Austerity: Expenditure- and Tax-based Approaches.
- Authors
Alesina, Alberto; Favero, Carlo; Giavazzi, Francesco
- 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. Spendingbased 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/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.
- Subjects
AUSTERITY; BUDGET deficits -- Government policy; TAX planning; UNITED States gross domestic product; RECESSIONS
- Publication
Journal of Economic Perspectives, 2019, Vol 33, Issue 2, p141
- ISSN
0895-3309
- Publication type
Article
- DOI
10.1257/jep.33.2.141