Wednesday, June 26, 2013
The True Story of European Austerity: Cutting Taxes and Spending Leads to Renewed Growth
Competitive Enterprise Institute
CEI In Point No. 184
June 26, 2013
European governments that have cut both spending and taxes as part of their austerity programs have higher rates of economic growth than their neighbors. Then why do we hear lamentations from the news media and politicians about “savage” budget cuts leading Europe to economic ruin? Because they are looking at the data in the wrong way.
Many analyses cited in the U.S. news media select a base year for all countries from which to measure changes in spending, taxation, and growth—usually 2007 or 2008.1 This methodology is imprecise because not all European countries have implemented austerity programs at the same time. Therefore, for many countries, measurements of austerity capture the time before they began making budget cuts.
This report measures austerity and its effects from the time austerity officially began in each country. The results are quite different from those that have been cited widely in the media. Proclamations of austerity notwithstanding, most European countries have cut neither spending nor taxes. Yet, the ones that have are now growing the fastest.
Read the Paper