Austerity Versus Stimulus: An Introduction to the Special Issue (original) (raw)
Related papers
STIMULUS OR AUSTERITY: A COMPARATIVE ANALYSIS OF FISCAL POLICY IN RESPONSE TO THE GREAT RECESSION
The Great Recession has provided a natural experiment and data for which to test Keynesian theory as well reignited the debate of the effectiveness of stimulus policy during recessions. In response to the proposition of expansionary stimulus, proponents of austerity have cited recent studies purporting austerity to also be expansionary. This paper provides an overview of the theoretical underpinnings and merits of these policy choices and argues based on current trends in economic indicators that stimulus was the appropriate action given the specific circumstances of the Great Recession. A comparative analysis is conducted of trends in economic indicators for the United States, United Kingdom, and euro area to evaluate which policy was more effective. Findings of this research show that initial stimulus measures in the U.K. and euro area were insufficient and austerity policy prolonged their recession's impact. Findings of this research also support the narrative that the larger and prolonged stimulus of the U.S. brought its economy out of official recession quicker and shows positive signs of economic health as of the end of 2014.
Austerity in the Aftermath of the Great Recession
2017
Crosscountry differences in austerity, defined as government purchases below forecast, account for 75 percent of the observed cross-sectional variation in GDP in advanced economies during 2010-2014. Statistically, austerity is associated with lower GDP, lower inflation and higher net exports. A multi-country DSGE model calibrated to 29 advanced economies generates effects of austerity consistent with the data. Counterfactuals suggest that eliminating austerity would have substantially reduced output losses in Europe. Austerity was so contractionary that debt-to-GDP ratios in some countries increased as a result of endogenous reductions in GDP and tax revenue.
AUSTERITY OR STIMULUS: WHICH IS THE BETTER CURE FOR RECESSION?
Since the 1980s, neoclassical thinking on political economy has been vested with a sense of optimism and expectation. Neoclassical economists have been the principal proponents of the hypothesis that austerity in a severe recession will lead to bona fide economic prosperity. However, their critics have argued that economic growth via austerity measures promoted by neoclassical theorists is merely a mirage and does not lead the economy anywhere but into an abyss. Opponents, who most often are Keynesian economists, advocate tax and public spending actions (stimulus expenditures) in a quest to reverse the deep decline that has devastated the U.S. middleclass. Adversaries deem neoclassical ideas as mythical logic and point to its ideology of free market economics and corporatization as having been detrimental to the well-being of America's middleclass. In this paper, we start with the study "Growth in the Time of Debt" to present pro and con arguments, while drawing attention to the neoclassical advocacy of austerity versus the Keynesian proposition pertaining to increased taxes, public spending and economic growth.
2017
Introduction From a crisis of the state in Greece to bankruptcy in the city of Detroit, the effects of austerity have had stunning policy implications in much of Europe and North America since the ‘great recession’ started in 2007-08. The history of contemporary austerity is remarkable for how quickly policy consensus was established between global economic institutions, central banks, and national policy makers. After a short flirtation with policies which promoted economic stimulus, politicians in country after country made the case for the necessity of “fiscal consolidation” or austerity, often pushed by the large international lending institutions, such as the IMF, World Bank and the European Central Bank. National (and sub-national) varieties of austerity were rolled out across much of Europe and the US, much as it had been across developing countries in previous decades.
Transatlantic Austerity 2010–13. A Comparative Assessment
Achieving Dynamism in an Anaemic Europe, 2015
Drawing on a large data collection, this paper offers a comprehensive assessment of fiscal austerity in twenty-nine major countries in the Transatlantic area in the aftermath of the Great Recession of 2008-09. Countries include the seventeen Euro members as of 2013, and twelve non-Euro countries, the ten other members of the European Union, United States and Canada. The paper is organized in two parts. First, an index of austerity is proposed based on the contraction of the public sector's net contribution to the economy. Then, there follows an assessment of austerity under the two dimensions of the improvement of public finances and interest rates, and of the collateral effects on economic activity and employment. The assessment is accompanied by reasoned discussion of the theoretical motivations and underpinnings of fiscal austerity and relevant criticisms. The main conclusion is that austerity in general has so far missed its promised goals, for (1) except budget deficits, public finances have further deteriorated, (2) countries under stronger austerity have achieved neither consolidation nor faster recovery but rather lower shock absorption, worse recovery performances, and higher unemployment. Claims that austerity failures are due to country-specific factors, such as mistakes in implementation and pre-crisis structural weaknesses, are not supported by robust evidence. 'Austerity' was the 2010 word of the year according to the Merriam-Webster Dictionary, with more than 250,000 clicks on the online edition. Austerity is today a notorious word that stands for what economists call "fiscal consolidation policies", recommended, and largely activated, all across the developed countries after the remarkable deployment of various fiscal supports to countervail the global
2015
Prepared for the 60th Economic Policy Panel, held on October 24-25, 2014 at EIEF in Rome. We thank Armando Miano and Giulia Giupponi for excellent research assistance. We are grateful to Refet Gurkaynak and two anonymous referees: their comments greatly improved the paper. We also thank Mario Buti, Vitor Constâncio, Paolo Mauro and the members of the Economic Policy Panel for their comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
Essays on the Great Recession and the Austerity
This thesis is devoted to the study of two of the most important macroeconomic events from recent times: the Great Recession of 2008-09, and Austerity in 2010-13. We argue that both phenomena have been primarily demand-driven, with the former taking the form of a synchronized self-fullling panic, and recessions in several advanced countries during the latter being driven by the increased desire of households to save due to cuts in welfare state spending. In Chapter 1, The Great Recession: Divide between Integrated and Less Inte-First, I thank my advisors Eric van Wincoop, Eric Young and Daniel Murphy for their invaluable help and guidance along the way. Second, I thank my fellow graduate students for very helpful discussions and suggestions, especially Selcen Cakir, Renzo Castellares, Hanna Charankevich, Devaki
Fiscal stimulus plans: The need for a global new deal
International Development Economics Associates, …, 2009
This article reviews the fiscal stimulus packages announced in 43 countries. In March 2009, the total amount announced for these stimulus plans is US$ 2.18 trillion, or 3.5% of world's GDP, mostly in higher income economies. The majority of these recovery packages contain measures to stimulate firms, consumers, and public investment in infrastructure. The author argues that a country approach is inadequate;a global crisis requires global responses. Developing countries will be hit hard; there is a need for increased ODA to enable them to engage in countercyclical stimulation. Stimulating global demand (and reducing poverty) will require further redistributive measures. Responses have been slow. There is an urgent need for a coordinated expansionary global stimulus package.