Austerity and asymmetries in the fiscal policies of the eurozone

Oscar Bajo-Rubio () and Antonio G. Gómez-Plana

No 1592, GLO Discussion Paper Series from Global Labor Organization (GLO)

Abstract: In this paper, we analyse the effects on the economies of the European Union and the rest of the world, of several austerity policies implemented by the Southern European countries, i.e., Portugal, Italy, Greece, and Spain. In particular, we simulate the reduction in one point in the government deficit-to-GDP ratio in each of these countries, through several alternative policies, both from the spending side and the revenue side. The empirical methodology is based on a computable general equilibrium model, which incorporates the backward sectoral linkages and inter-country flows generated by fiscal consolidations. Our results show that these austerity policies were generally more painful, in terms of a fall in the levels of activity and a worsening in income distribution for labour, in the scenarios of tax increases rather than in those based on spending cuts. The effects on the rest of the European Union and the rest of the world were however mostly negligible.

Keywords: Computable general equilibrium; Austerity policies; Global economy; European Union (search for similar items in EconPapers)
JEL-codes: C68 H20 H50 H62 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:glodps:1592

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