 Self-defeating austerity? Assessing the impact of a fiscal consolidation on unemploymentJoão Carlos Lopes and João Ferreira do Amaral The Economic and Labour Relations Review, 2017, vol. 28, issue 1, 77-90 Abstract: The great recession of 2008/2009 had a huge impact on unemployment and public finances in most advanced countries, and these impacts were magnified in the southern Euro area by the sovereign debt crisis of 2010/2011. The fiscal consolidation imposed by the European Union on highly indebted countries was based on the assumptions of so-called expansionary austerity. However, the reality so far provides proof to the contrary, and the results outlined in this article support the opposing view of a self-defeating austerity. Based on a model of the input–output relations of the productive system, an unemployment rate/budget balance trade-off equation is derived, as well as the impact of a strong fiscal consolidation based on social transfers and the notion of a neutral budget balance. An application to the Portuguese case confirms the huge costs of a strong fiscal consolidation, both in terms of unemployment and social policy regress. The conclusion is that too much consolidation in anyone year makes consolidation more difficult in the following year. Keywords: Austerity; fiscal consolidation; input–output analysis; Portugal; self-defeating austerity; unemployment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:sae:ecolab:v:28:y:2017:i:1:p:77-90 Access Statistics for this article More articles in The Economic and Labour Relations Review |
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