Can Fiscal Contraction Ever Boost Growth?
Recent experience in Europe suggests that fiscal contraction cannot be expansionary. In two South American countries, however, the idea that cutting government spending can spur growth should be revisited.
https://prosyn.org/EzVInne
SANTIAGO – Europe’s recent experience suggests that a fiscal contraction cannot be expansionary. When tried in Greece, government spending fell, taxes rose, and output collapsed. The same thing happened, in less dramatic form, elsewhere on the continent. Europe’s austerians, as the Nobel laureate economist Paul Krugman likes to call them, lost the argument.