Template-type: ReDIF-Paper 1.0
Author-Name: Fontana, Olimpia  
Author-Email: fontana@csfederalismo.it 
Author-Name: Sau, Lino  
Author-Email: lino.sau@unito.it
Author-Workplace-Name: University of Turin
Author-Workplace-Homepage: http://www.est.unito.it/
Title: Expansionary Austerity in Europe: Finally an Oxymoron?
Abstract: The expansionary austerity thesis (EAT) emerged and established itself in the 1990s, based on theoretical and
empirical research, and was rapidly incorporated into macroeconomic theory. In a nutshell, fiscal
consolidations, aimed at stabilizing or lowering the public debt-to-GDP ratio, can stimulate growth, even
during a recession. Simply put, expansionary austerity materialises. This is a counter-intuitive effect, that can
significantly be defined as "non-Keynesian". In this article, we attempt to summarise the debates around the
EAT and argue for its critical evaluation through a discussion of its assumptions and functioning, with specific
reference to the European Union. While much of the criticism has addressed various shortcomings of
econometric techniques, less attention has been paid to the logical robustness of the theoretical underpinnings
of the EAT. We provide an in-depth examination of austerity in terms of its evolution in economic thought
and consider Europe as a reference point, highlighting the link between the Washington Consensus and the
Berlin-Brussels Consensus. We conclude that the EAT ultimately proved to be an oxymoron, but the risks of
fiscal austerity could recur in the EU, undermining the need for expansionary fiscal policy in times of crisis.
Length: pages 29
Creation-Date: 2023-10
File-URL: https://www.est.unito.it/do/home.pl/Download?doc=/allegati/wp2023dip/wp_17_2023.pdf
File-Format: Application/PDF
Handle: RePEc:uto:dipeco:202317