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The impact of fiscal austerity in the Eurozone

Author

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  • Gennaro Zezza

    (Università di Cassino)

Abstract

This paper presents a framework to assess the likely impact of fiscal austerity in the Euro area, as a response to the turmoil in the financial markets. We provide some evidence on the sequence of events which generated public deficits and debts, and show that rising debts and deficits were the outcome of the external shock which hit the European economies from 2007 onwards, given the institutional setting, rather than the cause. After reviewing the theory supporting austerity as a solution to the crisis, we discuss the macroeconomics of austerity with the help of a stock-flow-consistent accounting structure in the context of a Keynesian–Kaleckian approach.

Suggested Citation

  • Gennaro Zezza, 2012. "The impact of fiscal austerity in the Eurozone," Review of Keynesian Economics, Edward Elgar Publishing, vol. 1(0), pages 37-54.
  • Handle: RePEc:elg:rokejn:v:0:y:2012:i:1:p37-54
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    References listed on IDEAS

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    1. Roberto Perotti, 2012. "The "Austerity Myth": Gain without Pain?," NBER Chapters,in: Fiscal Policy after the Financial Crisis, pages 307-354 National Bureau of Economic Research, Inc.
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    3. Wynne Goldey & Marc Lavoie, 2007. "Fiscal policy in a stock-flow consistent (SFC) model," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 30(1), pages 79-100.
    4. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of Two Small European Countries," NBER Chapters,in: NBER Macroeconomics Annual 1990, Volume 5, pages 75-122 National Bureau of Economic Research, Inc.
    5. Daniel Leigh & Andrea Pescatori & Jaime Guajardo, 2011. "Expansionary Austerity New International Evidence," IMF Working Papers 11/158, International Monetary Fund.
    6. Olivier Blanchard, 2009. "The State of Macro," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 209-228, May.
    7. Giancarlo Corsetti & André Meier & Gernot J. Müller, 2012. "What determines government spending multipliers?," Economic Policy, CEPR;CES;MSH, vol. 27(72), pages 521-565, October.
    8. Roberto Perotti, 2011. "The "Austerity Myth": Gain without Pain?," Working Papers 430, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    9. Jonathan A. Parker, 2011. "On Measuring the Effects of Fiscal Policy in Recessions," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 703-718, September.
    10. Gennaro Zezza, 2009. "Fiscal policy and the economics of financial balances," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 6(2), pages 289-310.
    11. Valerie A. Ramey, 2011. "Can Government Purchases Stimulate the Economy?," Journal of Economic Literature, American Economic Association, vol. 49(3), pages 673-685, September.
    12. Perotti, Roberto, 2011. "The "Austerity Myth": Gain without Pain?," CEPR Discussion Papers 8658, C.E.P.R. Discussion Papers.
    13. Pavlina Tcherneva, 2010. "Fiscal Policy: The Wrench in the New Economic Consensus," International Journal of Political Economy, Taylor & Francis Journals, vol. 39(3), pages 24-44.
    14. Roberto Perotti, 2011. "The "Austerity myth": Gain Without Pain?," BIS Working Papers 362, Bank for International Settlements.
    15. Thomas I. Palley, 2012. "The simple macroeconomics of fiscal austerity: Public debt,deficits and deficit caps," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 9(1), pages 91-108.
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    Citations

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    Cited by:

    1. Philipp Heimberger, 2017. "Did fiscal consolidation cause the double-dip recession in the euro area?," Review of Keynesian Economics, Edward Elgar Publishing, vol. 5(3), pages 439-458, July.
    2. Jorg Bibow, 2013. "Lost at Sea: The Euro Needs a Euro Treasury," Economics Working Paper Archive wp_780, Levy Economics Institute.
    3. Sergio Cesaratto, 2012. "The endless eurozone crisis, where do we stand? a classical-kaleckian overview," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2012(107), pages 35-63.
    4. Santiago Capraro & Carlo Panico & Ignacio Perrotini & Francesco Purificato, 2012. "Austerità o politiche coordinate ed espansive? Le difficili scelte delle autorità europee," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2012(108), pages 81-112.
    5. João Ferreira do Amaral & João Carlos Lopes, 2016. "Self-Defeating Austerity? Assessing the Impact of Fiscal Consolidations on Unemployment," Working Papers Department of Economics 2016/13, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    6. Stefano Lucarelli & Roberto Romano, 2016. "The Italian Crisis within the European Crisis. The Relevance of the Technological Foreign Constraint," World Economic Review, World Economics Association, vol. 2016(6), pages 1-12, February.
    7. Jörg Bibow, 2013. "Lost at Sea: The Euro Needs a Euro Treasury," IMK Studies 35-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    8. AMENDOLA, Adalgiso & DI SERIO, Mario & FRAGETTA, Matteo, 2018. "The Government Spending Multiplier at the Zero Lower Bound: Evidence from the Euro Area," CELPE Discussion Papers 153, CELPE - Centre of Labour Economics and Economic Policy, University of Salerno, Italy.
    9. CHIRIȚOIU Dorin Iulian & BURLACU Rodica, 2015. "Do Austerity Measures Harm International Trade?," European Journal of Interdisciplinary Studies, Bucharest Economic Academy, issue 01, March.
    10. Eckhard Hein & Daniel Detzer, 2014. "Coping with imbalances in the Euro area: Policy alternatives addressing divergences and disparities between member countries," Working papers wpaper63, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    11. Massimo Amato & Luca Fantacci & Dimitri B. Papadimitriou & Gennaro Zezza, 2016. "Going Forward from B to A? Proposals for the Eurozone Crisis," Economies, MDPI, Open Access Journal, vol. 4(3), pages 1-14, August.
    12. Charlotte Burns & Paul Tobin, 2016. "The Impact of the Economic Crisis on European Union Environmental Policy," Journal of Common Market Studies, Wiley Blackwell, vol. 54(6), pages 1485-1494, November.
    13. repec:voj:journl:v:64:y:2017:i:1:p:61-76 is not listed on IDEAS
    14. Jörg Bibow, 2013. "Lost at Sea:The Euro Needs a Euro Treasury," FMG Special Papers sp227, Financial Markets Group.
    15. Paolo Pini, 2013. "Europe’s austerity budget for 2014-2020 and its rejection by the European Parliament. A short comment over an anti-Keynesian budget," Working Papers 2013142, University of Ferrara, Department of Economics.

    More about this item

    Keywords

    fiscal policy; fiscal multiplier; Euro; trade imbalances;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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