Debt and austerity: international evidence and the case of Brazil
DOI:
https://doi.org/10.55532/1806-8944.2020.75Abstract
The term austerity indicates a policy of sizable reduction of government deficits and stabilization
of government debt achieved by means of spending cuts or tax increases, or a
combination of both. In this paper we ask two questions with an eye on the case of Brazil:
what type of austerity policies can achieve the fiscal goals at the lowest costs in terms of
output growth, and what are the electoral effects for governments implementing them?
If governments followed adequate fiscal policies most of the time, we would almost never have
a need for austerity. Economic theory and good policy practice suggest that a government
should run deficits during recessions – when tax revenues are lower and government spending
is higher due to the working of fiscal stabilizers such as unemployment subsidies. These
deficits should then be balanced by surpluses during booms, when spending needs are lower.
References
the "when" that matters in fiscal adjustments? NBER Working Papers 22863, National
Bureau of Economic Research, Inc.
Alesina, A., F. R. Campante, and G. Tabellini (2008). Why is fiscal policy often procyclical?
Journal of the European Economic Association 6(5), 1006–1036.
Alesina, A., D. Carloni, and G. Lecce (2012). The electoral consequences of large fiscal
adjustments. In A. Alesina and F. Giavazzi (Eds.), Fiscal Policy after the Financial Crisis,
Chapter 13, pp. 531–570. National Bureau of Economic Research, Inc.
Alesina, A., C. Favero, and F. Giavazzi (2015). The output effect of fiscal consolidation plans.
Journal of International Economics 96 (S1), S19–S42.
Alesina, A., C. Favero, and F. Giavazzi (2019). Austerity: When It Works and When It
Doesn’t. Princeton University Press.
Alesina, A. and A. Passalacqua (2016). The political economy of government debt. In J. B.
Taylor and H. Uhlig (Eds.), Handbook of Macroeconomics, Volume 2, Chapter 33, pp. 2599
– 2651. Elsevier.
Alesina, A., R. Perotti, J. Tavares, M. Obstfeld, and B. Eichengreen (1998). The political
economy of fiscal adjustments. Brookings Papers on Economic Activity 1998 (1), 197–266.
Alesina A., Furceri D., O. J. P. C. and D. Quinn (2019). Structural reforms and election:
Evidence from a world-wide new dataset. Manuscript.
Auerbach, A. J. and Y. Gorodnichenko (2012, May). Measuring the output responses to
fiscal policy. American Economic Journal: Economic Policy 4 (2), 1–27.
Brender, A. and A. Drazen (2008, December). How do budget deficits and economic growth
affect reelection prospects? evidence from a large panel of countries. American Economic
Review 98 (5), 2203–20.
Favero, C. and P. Mei (2019). Austerity and public debt dynamics. CEPR Discussion Paper
14072 .
Guajardo, J., D. Leigh, and A. Pescatori (2014, 08). Expansionary austerity? international
evidence. Journal of the European Economic Association 12(4), 949–968.
Jordà, O. (2005). Estimation and inference of impulse responses by local projections. The
American Economic Review 95 (1), 161–182.
Koop, G., M. H. Pesaran, and S. M. Potter (1996, September). Impulse response analysis in
nonlinear multivariate models. Journal of Econometrics 74 (1), 119–147.
Ramey, V. A. and S. Zubairy (2017). Government spending multipliers in good times and in
bad: Evidence from u.s. historical data. Journal of Political Economy forthcoming.
Downloads
Published
How to Cite
Issue
Section
License
The articles can be copied, since quoted the source.
