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Austerity in the European Union: Keynesian Stimulus versus Fiscal Consolidation

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  • Gordon Brady

Abstract

This paper summarizes current EU austerity programs and discusses various fiscal policy reform proposals under consideration. It points out political and theoretical problems with these proposals and makes the case for fiscal consolidation through spending reduction rather than tax cuts. The paper provides supply side evidence of non-Keynesian expansions from spending cuts and identifies austerity and fiscal consolidation concerns for policy makers. The paper concludes that while the timing of spending cuts is important and there are political risks to fiscal consolidations which may frighten politicians, the economic payoffs justify austerity programs based primarily on budget and spending cuts. Copyright International Atlantic Economic Society 2015

Suggested Citation

  • Gordon Brady, 2015. "Austerity in the European Union: Keynesian Stimulus versus Fiscal Consolidation," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(1), pages 55-65, March.
    • Handle: RePEc:kap:atlecj:v:43:y:2015:i:1:p:55-65
    DOI: 10.1007/s11293-014-9447-x
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    Cited by:

    1. Gordon L. Brady & Cosimo Magazzino, 2018. "Sustainability and comovement of government debt in EMU Countries: A panel data analysis," Southern Economic Journal, John Wiley & Sons, vol. 85(1), pages 189-202, July.
    2. Afonso, António & Alves, José & Jalles, João Tovar, 2022. "To consolidate or not to consolidate? A multi-step analysis to assess needed fiscal sustainability," International Economics, Elsevier, vol. 172(C), pages 106-123.
    3. Woldu, Gabriel Temesgen & Szakálné Kanó, Izabella, 2023. "Macroeconomic effects of fiscal consolidation on economic activity in SSA countries," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    4. João Veríssimo LISBOA & Mário Gomes AUGUSTO & Juan PIÑEIRO-CHOUSA, 2015. "A Combined Approach To Access Short Term Changes In Economic Activity Of Portugal And Spain," Revista Galega de Economía, University of Santiago de Compostela. Faculty of Economics and Business., vol. 24(2), pages 99-110.

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    More about this item

    Keywords

    Fiscal policy; Public finance; E62; E00;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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