Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/155378 
Year of Publication: 
2017
Citation: 
[Journal:] DIW Economic Bulletin [ISSN:] 2192-7219 [Volume:] 7 [Issue:] 8 [Publisher:] Deutsches Institut für Wirtschaftsforschung (DIW) [Place:] Berlin [Year:] 2017 [Pages:] 89-93
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
The fiscal consolidation efforts of Spain, Italy, and Portugal from 2010 to 2014 did not achieve their goal of reducing the debt-to-GDP ratio in any of the three countries. This Economic Bulletin examines why the spending cuts and tax increases, at times drastic, were unsuccessful and perceptibly contributed to sending the three countries back into recession. The sharp decrease in private household debt played a key role, especially in Spain. It weakened private consumption, and subsequent reductions in public spending amplified the slowdown with negative consequences on growth and tax revenues. The austerity policy also appears to have had a negative impact on productivity, neutralizing the beneficial effects of structural reforms. Contrary to widespread opinion, the lack of structural reforms was not the key reason for the austerity policy's failure. The goal of reducing the debt-to-GDP ratio can only be achieved with a balanced policy mix of structural reforms, mild austerity measures, and if possible, budget reallocation in favor of investment.
Subjects: 
fiscal consolidation
private debt
hysteresis
JEL: 
E24
E32
E44
E62
Document Type: 
Article

Files in This Item:
File
Size
518.59 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.