Austerity, Growth, and Public Policy



Deceleration in growth and weakened fiscal buffers in the aftermath of the global financial crisis brought the issue of austerity vs. growth to the forefront of the public policy debate. Some authors have argued that fiscal stimulus can increase the rate at which the output gap is closed, minimizing the cost of recession and bringing down debt ratios. Others have proposed that fiscal stimulus under current conditions could further weaken macro fundamentals and be detrimental to growth; conversely, fiscal consolidations can have expansionary effects. This note reviews the evidence in support of both views, concluding that fiscal consolidation can have a positive impact on growth, but these effects are not guaranteed and are more likely to work when commitments are credible and accompanied by complementary policies. The mixed nature of the evidence is also reflected in the different policy stances adopted by G20 members in response to the global crisis.


Gross Domestic Product International Monetary Fund European Central Bank Global Financial Crisis Fiscal Consolidation 


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© Springer India 2014

Authors and Affiliations

  1. 1.Economic Policy and Poverty UnitThe World BankNew DelhiIndia

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