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Consolidation causes little austerity

Author

Listed:
  • Musgrave, Ralph S.

Abstract

There is a widespread view that reducing national debts and deficits, or “consolidating” them, causes austerity or would hinder the recovery. The reality is that reducing structural debts and deficits and “stimulus debts” is easily done without any significant deflationary effects. In contrast, stimulus deficits cannot be reduced in that they are required to deal with recessions, thought they can perfectly well accumulate as extra monetary base rather than as extra debt. Money for the above debt and deficit reduction can be obtained from raised taxes and/or public spending cuts, while making good the deflationary effect of the latter with quantitative easing. As long as the deflationary effect of the former equals the stimulatory effect of the latter, there is little net effect on GDP, aggregate employment and so on. Meanwhile debts or deficits are reduced.

Suggested Citation

  • Musgrave, Ralph S., 2011. "Consolidation causes little austerity," MPRA Paper 34295, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:34295
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    File URL: https://mpra.ub.uni-muenchen.de/34295/1/MPRA_paper_34295.pdf
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    References listed on IDEAS

    as
    1. Hillinger, Claude, 2010. "The crisis and beyond: Thinking outside the box," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 4, pages 1-61.
    2. Musgrave, Ralph S., 2010. "Government borrowing is pointless where a government issues its own currency," MPRA Paper 20057, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    consolidation; debt; deficit; austerity; stimulus;

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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