Austerity as a Tool of Fiscal Consolidation: Theoretical and Empirical Perspective

This chapter discusses the public debts and austerity policies in the UK and also other advanced economies. It is still important to discuss austerity policies and their overall impact on the economy, because the British government has an unclear policy, particularly since the Brexit vote. Philip Hammond, the current Chancellor of exchequer has said that he will not to aim to meet George Osborne’s debt targets and fiscal rules aimed at balancing the budget by 2020 because these are no longer viable as the economy slows down. Contrary to this, Stiglitz (2017) explains: “In an economy, when the government spends more and invests in the economy, that money circulates, and recirculates again and again. So not only does it create jobs once: the investment creates jobs multiple times. The result of that is the economy grows by a multiple of the initial spending, and public finances turn out to be stronger: as economy grows fiscal revenues increases, and demands for social programmes to help the poor and needy, go down” (Stiglitz, 2017). However, no clear policy has been put forward for fiscal activism of the kind witnessed in the 1950s (Boyer, 2012).