About the Book
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.
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.
“This is an amazing, important, and timely book by leading thinkers on matters of fiscal policy. Drawing on careful data analysis, Austerity demonstrates how fiscal consolidation is sometimes unavoidable, how spending cuts are better than tax increases, and how politicians pursuing them can get reelected. This is what economics is for! Truly well written, highly recommended.”—Harald Uhlig, University of Chicago
“Austerity is a superb guidebook for policymakers and academic researchers alike. Drawing on the latest academic research and policy experiments, it provides an encyclopedic account of the likely effects of fiscal consolidations on economic outcomes and how those effects might vary according to circumstances.”—Valerie A. Ramey, University of California, San Diego
“This pathbreaking book will be the reference for researchers, students, and practitioners for many years to come.”—Charles Wyplosz, coauthor of The Economics of European Integration
“This brilliant and important book presents a simple bottom line: when government finances are in danger of spiraling out of control and taking the economy with them, cutting spending is far less damaging than raising taxes, especially the taxes governments tend to raise in a crisis—those on investment.”—John H. Cochrane, author of Asset Pricing