Markus Eberhardt, Andrea Presbitero, 17 November 2013

The idea that there is a common tipping point in the relationship between public debt and economic growth is still widespread. However, this is likely due to a misinterpretation of the existing evidence. Once we allow for the relationship between debt and growth to be country-specific, there is limited evidence supporting the presence of a within-countries debt threshold.

Silvana Tenreyro, Gregory Thwaites, 12 November 2013

Governments wary of fiscal expansion have turned to monetary policy to stimulate slowly recovering economies. This column presents evidence that lowering interest rates is ineffective during recessions – just when fiscal policy would be most effective. If this result is robust, we are seeing recent signs of recovery in spite of austerity, not because of it.

Lorenzo Bini Smaghi, 06 November 2013

Today’s austerity, many argue, is stupid. This column argues that today’s EZ austerity may arise from stupidity before the crisis – specifically lacklustre structural reform. Excess debt arose in nations maintaining unsustainable living standards and welfare systems in the face of poor growth. The Crisis forced radical adjustments such as austerity in a recession. It’s not austerity which caused low growth, but low pre-Crisis growth which ultimately caused austerity. The way out of austerity is fundamental pro-growth reforms that create room for more gradual fiscal adjustment.

Marco Buti, Pier Carlo Padoan, 08 October 2013

The causes of the Eurozone’s slow growth are much debated. This column argues that fiscal consolidation will be less of a drag going forward but that the ongoing recovery remains fragile. A policy strategy is needed to support the recovery based on three mutually reinforcing elements – reducing policy uncertainty, repairing the financial system, and undertaking structural reforms.

Carlos Vegh, Guillermo Vuletin, 01 October 2013

Government spending is procyclical in developing countries, exacerbating the business cycle. However, an analysis of tax policy is also required in order to properly assess the overall stance of fiscal policy. This column presents recent research showing that tax policy tends to be procyclical in developing countries and acyclical in developed countries. Although some developing countries have managed to escape the procyclical fiscal policy trap, some developed nations – notably Eurozone members – are falling into it.

Alan Taylor, 20 July 2013

Recent austerity policies have been guided by ideology rather than research. This column discusses research that reconciles disparate estimates of fiscal multipliers in the literature. It finds that common identification assumptions are problematic. Matching methods based on propensity scores show how contractionary austerity really is, especially in economies operating below potential.

Richard Wood, 11 May 2013

The world economy seems to be acting in unexpected ways. This column argues that austerity and quantitative easing do not seem to be working out as advertised. There is an urgent need to review the effectiveness of alternative macroeconomic policy approaches, and prepare an internationally agreed pro-growth plan to reflate distressed economies. The outlines of one such plan are presented.

Olivier Blanchard, Daniel Leigh, 03 May 2013

The debate about fiscal consolidation reduces too often to shouting matches about the value of fiscal multipliers, or about the existence of a critical debt-to-GDP ratio. This does not do justice to what is a complex choice, depending on many factors. Our purpose in this article is to review the relevant factors at play and allow for a richer discussion.

Reda Cherif, Fuad Hasanov, 03 May 2013

Europe’s austerity-first approach has triggered research-based efforts to evaluate the effectiveness of debt-reduction strategies. This column, based on a US empirical study, suggests that an ‘austerity shock’ in a weak economy may be self-defeating. Public-debt reduction historically occurs gradually amid improved growth. If policymakers, firms and households respond as in the past, we should expect lower deficits amid higher growth and, eventually, decreasing debt ratios.

Marco Buti, Nicolas Carnot, 14 March 2013

As the Eurozone growth continues to be negative, debates over the correct degree of austerity continue. This column presents the Commission’s view on how and why austerity continues to be necessary.

Richard Wood, 04 March 2013

Despite recent calm in the markets, the Eurozone crisis seems far from over. So far, responses have worked little magic. This column argues that at some point soon, Eurozone governments will be forced by voters to reverse austerity and stimulate growth. A number of policy options are available, but it is clear that pro-growth fiscal stimulus policies should take their place. Longer-term fiscal consolidation will nonetheless also be required to reduce excessive levels of public spending relative to GDP.

Paul De Grauwe, Yuemei Ji, 21 February 2013

Eurozone policy seems driven by market sentiment. This column argues that fear and panic led to excessive, and possibly self-defeating, austerity in the south while failing to induce offsetting stimulus in the north. The resulting deflation bias produced the double-dip recession and perhaps more dire consequences. As it becomes obvious that austerity produces unnecessary suffering, millions may seek liberation from ‘euro shackles’.

John Van Reenen, 15 September 2012

John Van Reenen talks to Viv Davies about fiscal consolidation during a depression. They discuss Van Reenen's recent work on quantifying the costs and benefits of delaying austerity measures until recovery is clearly established. They also discuss whether austerity has gone too far. Van Reenen presents the case for a more federal Europe. The interview was recorded at the LSE on 13 September 2012.

Benedict Clements, Ruud de Mooij, Gerd Schwartz, 09 September 2012

Many advanced country governments face the dual challenge of promoting job growth while pushing ahead with spending cuts. This column discusses how well-designed fiscal policy reforms can help boost employment without busting the government budget.

Carlo Favero, Francesco Giavazzi, 07 September 2012

The austerity debate hangs on the question of how fiscal policy affects economic output – but answering that question is no easy task. This column presents a paper that, it argues, overcomes some of the problems with identifying cause and effect.

Coen Teulings, 13 September 2012

Many OECD countries suffer from high sovereign debts. Sooner or later, this problem must be addressed. Many argue that this will require some form of fiscal retrenchment or institutional reform or a combination of the two. This column argues that the two are not complements as many suggest – they are instead substitutes.

Nitika Bagaria, Dawn Holland, Jonathan Portes, John Van Reenen, 14 August 2012

While most economists agree that the UK and other countries need to cut back to ensure the sustainability of their public finances, the debate rages over when and by how much. This column argues that the timing matters – starting too early, before the economy has recovered, will have substantial economic costs.

Jeffrey Frankel, 07 August 2012

Is austerity good or bad? This column argues that it is as foolish to argue this question as it would be to debate whether it is better to drive on the left or right. Procyclical fiscal policy, on the other hand, is another question.

Daniel Gros, 19 July 2012

Despite the EZ doom and gloom discussion, the US and EZ are at roughly the same point in their recovery from the global crisis. This column argues that the ‘austerity kills’ narrative of Krugman and Layard misses the basic point. Public debt ratios without retrenchment would become unsustainable. The fact that austerity is costly does not mean it should not be undertaken.

Richard Layard, 06 July 2012

Richard Layard of the LSE talks to Viv Davies about his and Paul Krugman’s recently published ‘Manifesto for Economic Sense’, which aims to generate a movement of economists who are prepared to speak out against policies they know to be wrong - the excessive austerity of current fiscal policies. They discuss the role of the ECB as lender of last resort and whether the current bank-led capitalist culture can ever be changed. The interview was recorded in London on 5 July 2012.

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