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On the current “austerity or growth” debate

Author

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  • Hans-Werner Sinn
  • Niklas Potrafke

Abstract

“Austerity” or “growth”. These are the alternative economic policies between which politicians must choose today. Hans-Werner Sinn and Niklas Potrafke show that such an alternative is misleading for the general public. Additional increases in government spending to stimulate the economy lead to direct growth in the national debt and have no long-term positive but only a negative effect on economic growth. An economy can grow only from its savings, since savings provide the financial resources for investments, from which growth emerges.

Suggested Citation

  • Hans-Werner Sinn & Niklas Potrafke, 2012. "On the current “austerity or growth” debate," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 65(10), pages 07-08, May.
    • Handle: RePEc:ces:ifosdt:v:65:y:2012:i:10:p:07-08
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    File URL: https://www.ifo.de/DocDL/ifosd_2012_10_2.pdf
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    References listed on IDEAS

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    1. Tobias Cwik & Volker Wieland, 2011. "Keynesian government spending multipliers and spillovers in the euro area [Fiscal policy and growth: do financial crises make a difference?]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 26(67), pages 493-549.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    3. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2012. "Fiscal Stimulus with Spending Reversals," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 878-895, November.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "Growth in a Time of Debt," American Economic Review, American Economic Association, vol. 100(2), pages 573-578, May.
    5. Andreas Bergh & Magnus Henrekson, 2011. "Government Size And Growth: A Survey And Interpretation Of The Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 25(5), pages 872-897, December.
    6. António Afonso & Hans Peter Grüner & Christina Kolerus, 2010. "Fiscal Policy and Growth: Do Financial Crises make a Difference?," Working Papers Department of Economics 2010/10, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    7. Carmen M. Reinhart & Vincent R. Reinhart & Kenneth S. Rogoff, 2012. "Public Debt Overhangs: Advanced-Economy Episodes since 1800," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 69-86, Summer.
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    Cited by:

    1. Anja Rohwer & Anja Hülsewig, 2012. "Update of Ifo Institutional Index for OECD Countries, 2012 – Brief summary of latest results," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 65(13), pages 69-75, July.

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    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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