Joan Costa-Font, Sergi Jiménez-Martín, Analía Viola, 11 April 2021

The COVID-19 pandemic has had a disproportionate impact on older Europeans living in nursing homes. This column finds evidence consistent with a 'fatal underfunding hypothesis', suggesting that the regional variation in nursing home fatalities during the first wave of the pandemic in Spain is associated with indicators of underfunding such as understaffing, larger nursing homes, and occupancy rates. Coordination failures both between healthcare and long-term care and between central and regional governments also contributed.

George Alogoskoufis, 23 February 2021

Greece experienced a deep recession in 2020, and pandemic relief measures have led to further increases in its exorbitantly high public debt. This column outlines three potential methods for dealing with increasing debt after the crisis: (1) increases in taxation/reductions of government spending, (2) debt restructuring and (partial) debt write-offs, or (3) a policy of ‘gradual adjustment’ in which economic growth helps the debt burden shrink relative to GDP over time. The precise policy mix will involve significant coordination among euro area countries, but Greece must also implement domestic reforms to facilitate a dynamic and sustainable recovery. 

Gregori Galofré Vilà, Christopher Meissner, Martin McKee, David Stuckler, 16 August 2020

Many Western countries pursued deep austerity measures in response to debts from the financial crisis of 2007-2008, and may again do so in the wake of COVID-19 stimulus packages. This column reviews how in the early 1930s, austerity measures worsened social suffering and contributed to political unrest paving the way for the rise of the Nazi Party in Germany. The authors argue that the absence of a coherent response to social suffering from the Weimar government worsened the slump, contributing to the radicalisation and polarisation of the German electorate.

Simon Wren-Lewis, 16 April 2019

Francesco Bianchi, Diego Comin, Howard Kung, Thilo Kind, 26 February 2019

During the Great Recession, several European countries implemented fiscal austerity measures to reduce sovereign debt. This column argues that such policies affect the decision to adopt new technologies and can have negative consequences for productivity and growth in the medium run. Thus, low technology adoption due to fiscal austerity can lead to slow recoveries. These, in turn, can make the fiscal stabilisation unnecessarily costly. Fiscal austerity is desirable only if it is able to reduce the cost of financing debt quickly.

Antonio Fatás, 28 September 2018

The damage done by procyclical fiscal policy in the euro area between 2010 and 2014 is likely to be even larger than previous studies have suggested. The column argues that fiscal policymakers at the time created a 'doom loop', with unfounded pessimism feeding into policy, and the consequences of those policies increasing pessimism. This has created hysteresis, permanently reducing GDP. 

Simon Wren-Lewis, 02 August 2018

Rasmus Wiese, Richard Jong-A-Pin, Jakob de Haan, 26 March 2018

Empirical research concludes that austerity measures that target spending are more likely to succeed than those that target taxation. This column argues that this result arises from a methodological flaw that assumes all countries have equal variability in their budget balance. Correcting for this in data from 20 OECD countries suggests that spending-based and revenue-based adjustments have been equally successful.

Paul Krugman, 04 October 2017

Where did policymakers got it right? In this video, Paul Krugman explains how central banks did the right thing, whereas austerity was imposed at the wrong time. This video was recorded at the "10 years after the crisis" conference held in London, on 22 September 2017.

Christopher House, Christian Proebsting, Linda Tesar, 11 April 2017

Austerity policies implemented during the Great Recession have been blamed for the slow recovery in several European countries. Using data from 29 advanced economies, this column shows that austerity policies negatively affect economic performance by reducing GDP, inflation, consumption, and investment. It also warns that efforts to reduce debt through austerity in the depths of the economic recession were counterproductive.

Alberto Alesina, Gualtiero Azzalini, Carlo Favero, Francesco Giavazzi, Armando Miano, 16 December 2016

When a government wants to cut a deficit, it must decide both how and when to do it. Research has treated the two questions as if they are independent, which risks attributing good policy to good timing, or vice versa. This column argues that when the effects are considered simultaneously, the composition of fiscal adjustments is much more important than the state of the cycle. Fiscal adjustments based upon spending cuts have losses that are on average close to zero, while those based upon tax increases are associated with large and prolonged recessions, regardless of whether or not the adjustment starts in a recession. 

Biagio Bossone, Stefano Labini, 01 July 2016

Despite facing many of the same challenges, Germany’s current macroeconomic policy is substantially different to those of other countries, in part due to the economy legacy of Walter Eucken. This column considers the economic policy of Hjalmar Schacht, whose ‘MEFO-bills’ monetary solution ended the years of economic struggle caused by the Treaty of Versailles’ reparations commitments. By tying the bills to output, Schacht was able to stimulate output, and eliminate unemployment. This historical implication has clear modern-day implications, with parallels to ‘helicopter money’ policy and Italy’s recent ‘fiscal money’ proposal.

Lawrence H. Summers, Antonio Fatás, 25 October 2015

The global financial crisis has permanently lowered the path of GDP in all advanced economies. At the same time, and in response to rising government debt levels, many of these countries have been engaging in fiscal consolidations that have had a negative impact on growth rates. We empirically explore the connections between these two facts by extending to longer horizons the methodology of Blanchard and Leigh (2013) regarding fiscal policy multipliers. Using data seven years after the beginning of the crisis as well as estimates on potential output our analysis suggests that attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to GDP ratio through their negative impact on output.  Our results provide support for the possibility of self-defeating fiscal consolidations in depressed economies as developed by DeLong and Summers (2012).

Paolo Mauro, Jan Zilinsky, 18 September 2015

The public narrative on austerity is shaped by simple scatter plots purporting to portray the large negative impact of fiscal ‘austerity’ on economic growth. This column argues that, while recognising concerns about causality, economists should systematically explore correlations and multiple regressions, and test their robustness. The results reveal a mixed picture, lending partial support to the notion that fiscal choices and output growth are empirically associated.

Carlos Cantú, KeyYong Park, Aaron Tornell, 12 April 2015

The wisdom of structural reform during a crisis is a subject of heated debate. This column compares Greece’s experience to that of Mexico during the debt crisis of the 1980s. Mexico did not receive a haircut until seven years into the crisis – after structural reform was already underway. In Mexico that reform was the outcome of an internal conversation – not a diktat from the outside – and it happened during the height of the crisis.

Anusha Chari, Peter Blair Henry, 06 March 2015

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.

Marco Buti, Nicolas Carnot, 24 February 2015

In an uncertain world, fiscal policy must be robust to a range of models. This column introduces a rule of thumb governing fiscal expansion that is consistent for a group of countries, and for each country individually. Applying this rule to the Eurozone recommends overall fiscal neutrality, with moderate consolidation in France and Spain, lower consolidation in Italy, and moderate stimulus in Germany. This policy is optimal for Germany even without taking into account positive spillovers to other members.

Sebastian Gechert, Andrew Hughes Hallett, Ansgar Rannenberg, 26 February 2015

The literature on fiscal multipliers has expanded greatly since the outbreak of the Global Crisis. This column reports on a meta-regression analysis of fiscal multipliers collected from a broad set of empirical reduced form models. Multiplier estimates are significantly higher during economic downturns. Spending multipliers exceed tax multipliers, especially during recessions. The authors estimate that the Eurozone’s fiscal consolidation – most significantly transfer cuts – reduced GDP by 4.3% relative to the no-consolidation baseline in 2011, increasing to 7.7% in 2013.

Sebastian Gechert, Andrew Hughes Hallett, Ansgar Rannenberg, 25 February 2015

The literature on fiscal multipliers has expanded greatly since the outbreak of the Global Crisis. CEPR Policy Insight 79 reports on a meta-regression analysis of fiscal multipliers collected from a broad set of empirical reduced form models. Multiplier estimates are significantly higher during economic downturns. Spending multipliers exceed tax multipliers, especially during recessions. The authors estimate that the Eurozone’s fiscal consolidation – most significantly transfer cuts – reduced GDP by 4.3% relative to the no-consolidation baseline in 2011, increasing to 7.7% in 2013.

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