Chari, Α. & Blair Henry, Ρ. (2015) “Austerity and recovery: East Asian lessons for Europe“, VoxEU Organisation, 06 Μαρτίου.
In the wake of the Great Recession, a contentious debate has erupted over whether austerity is helpful or harmful for economic growth. This column compares the experiences of the East Asian countries – whose leaders responded to the East Asian financial crisis with expansionary fiscal policy – with those of the European periphery countries during the Great Recession. The authors argue that it was a mistake for the European periphery countries to pivot from fiscal expansion to consolidation before their economies had recovered.
In the wake of the Great Recession, a contentious debate has erupted over whether fiscal consolidation, less formally known as ‘austerity’, is helpful or harmful for economic growth. One side argues that austerity is expansionary when achieved via spending cuts rather than tax increases (Alesina and Perotti 1995, Alesina and Ardagna 2010). An alternative view, consistent with textbook prescriptions for countercyclical fiscal policy, suggests that fiscal consolidation is harmful to growth when implemented in the midst of a crisis (Blanchard and Leigh 2013). Both camps, however, ignore the wealth of information inherent in comparing the economic performance of countries that pursue fiscal austerity with those that opt for a different path.
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