Economic Brief

September 2013, No. 13-09

Is Fiscal Austerity Good for the Economy?

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Concerns about fiscal imbalances in Europe and the United States have led to intense debates about whether governments should dramatically cut spending or increase taxes to reduce government debt — a course of action often called fiscal "austerity." But is austerity likely to hurt economic growth? That question has not been definitively answered — but even if austerity is costly in the short run, it can provide long-run benefits.

Additional Resources

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Alesina, Alberto, Carlo Favero, and Francesco Giavazzi, "The Output Effect of Fiscal Consolidations," Manuscript, May 2013 (updated October 2014).

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