Revisiting the pain in Spain

Paul De Grauwe 07 July 2014

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The different macroeconomic adjustment dynamics in Spain – a member of a monetary union – and the UK – a stand-alone country – is stark. Paul Krugman popularised this contrast in his New York Times blog with the title “The Pain in Spain” (Krugman 2009, 2011), and commented on my own analysis in De Grauwe (2011).

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Topics:  Europe's nations and regions Global crisis Macroeconomic policy

Tags:  ECB, monetary policy, euro, EMU, Spain, monetary union, fiscal policy, UK, government debt, austerity, EZ crisis, Outright Monetary Transactions, currency depreciation

The social impact of fiscal policy responses to crises

Carlos A. Vegh , Guillermo Vuletin 12 June 2014

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Fiscal policy in many developing countries is typically procyclical. Expansionary in good times and contractionary in bad times, these policies often amplify business cycles. The most convincing explanations for such practices seem to be limited access to international credit markets during bad times and political pressures that tend to encourage too much public spending during boom periods (Calderon and Schmidt-Hebbel 2008). Whatever the reason, the pattern is well documented (see Frankel, Vegh, and Vuletin 2011 on the spending side and Vegh and Vuletin 2013a on the tax side).

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Topics:  Macroeconomic policy

Tags:  fiscal policy, business cycle, austerity, cyclicality, LAC-7

Does austerity work? There’s no proof that it does

Markus Eberhardt interviewed by Viv Davies,

Date Published

Sun, 05/11/2014

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See Also

 

Eberhardt,  M. 2013. 'Nonlinearities in the Relationship between Debt and Growth: Evidence from Co-Summability Testing'. CFCM Working Paper 13/06

Eberhardt, M. and Presbitero, A. 2013. 'This Time They're Different: Heterogeneity and Nonlinearity in the Analysis of Debt and Growth'. CFCM Working Paper 13/10

 

 

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Topics

Macroeconomic policy
Tags
debt, GDP growth, austerity, Rogoff-Reinhart debate

Related Article(s)

Debt and growth: No ‘tipping point’ Public debt and economic growth, one more time Rethinking austerity: Introducing a new Vox eCollection Debt and growth revisited
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Fiscal adjustment and growth: Beware of the credit constraints

Emanuele Baldacci, Sanjeev Gupta, Carlos Mulas-Granados 31 March 2014

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In the aftermath of the recent financial crisis, the discussion of the effects of fiscal adjustment on economic growth has intensified. While some scholars have focused on the characteristics of the fiscal consolidation needed to bring public debt down from historically high levels, others have examined the effects of alternative strategies on economic performance. The VoxEU debate aptly covered in “Has Austerity Gone Too Far?” (Corsetti 2012) sums up the conflicting positions.

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Topics:  Financial markets Macroeconomic policy

Tags:  financial crisis, fiscal policy, deleveraging, fiscal consolidation, debt, credit constraints, austerity

Tax evasion and austerity-plan failure

Francesco Pappadà, Yanos Zylberberg 03 February 2014

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Austerity plans in southern European countries (Greece, Portugal, Spain, and Italy) have so far yielded mixed results (Salto 2013). On the one hand, the primary budget balances of these countries have improved, and their risk premiums are now stabilised at a much lower level than during the crisis peak.

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Topics:  Financial markets Taxation

Tags:  VAT, transparency, tax evasion, Greece, credit, austerity, European sovereign debt crisis

Public debt and economic growth: There is no ‘tipping point’

Markus Eberhardt, Andrea F Presbitero 17 November 2013

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The presence of a common threshold, or ‘tipping point’ – beyond which the detrimental impact of debt on growth is significant, or significantly increases – is currently taken as given in many policy circles. In the US, although many political battles impinge on the Congressional debate over the debt ceiling and the resulting government shutdown of October 2013, this somewhat reflected a widespread belief that debt is dangerous, and that fiscal austerity represents the only way of restoring sustainable growth.

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Topics:  Macroeconomic policy

Tags:  growth, debt, austerity

Pushing on a string: US monetary policy is less powerful during recessions

Silvana Tenreyro, Gregory Thwaites 12 November 2013

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Most industrialised countries have been trying to cut public borrowing without impeding recovery from the Great Recession. Central banks have attempted to square this circle by loosening monetary policy. For example, UK finance minister George Osborne has stated that “theory and evidence suggest that tight fiscal policy and loose monetary policy is the right macroeconomic mix” for countries with excessive private and public debt (Mansion House speech 2012).

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Topics:  Global crisis Monetary policy

Tags:  monetary and fiscal policy, economic recovery, US, austerity

Austerity and stupidity

Lorenzo Bini Smaghi 06 November 2013

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 The recent Eurozone crisis has shown that austerity measures are self-defeating. They produce severe recessionary consequences which – at least in the short term – tend to increase public debt, as a ratio to GDP. This assessment is confirmed by econometric analysis showing that budgetary adjustments have been more recessionary than expected, with fiscal multipliers being higher than unity (Blanchard and Leigh 2013).

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Topics:  Macroeconomic policy

Tags:  austerity, stupidity

How to make Europe's incipient recovery durable – A rejoinder

Marco Buti, Pier Carlo Padoan 08 October 2013

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Our recent Vox column triggered an interesting and lively debate (see for instance Krugman, 2013; Fatas, 2013; Watt, 2013). In it, we argued that weak private investment is partly to blame for the growth shortfall of the Eurozone compared to the US in the past few years and that putting in place conditions for stronger investment was essential to turn the recent pick up of confidence and activity in the Eurozone into a robust and self-sustained recovery (Buti and Padoan, 2013).

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Topics:  Macroeconomic policy

Tags:  Great Recession, austerity, EZ recovery

Tax-policy procyclicality

Carlos A. Vegh , Guillermo Vuletin 01 October 2013

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It is well-established that government spending in developing countries has often been procyclical. In other words, government spending has increased in good times and contracted in bad times, thus exacerbating the underlying business cycle. The inability to save in good times to build a war chest for bad times has often led to wrenching financial and sovereign-debt crises.

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Topics:  Macroeconomic policy Taxation

Tags:  tax, developing countries, business cycles, fiscal policy, austerity, cyclicality

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