The "Austerity Myth": Gain without Pain?

This chapter examines four case studies of large fiscal consolidations. Two of these episodes--Denmark 1982 to 1986 and Ireland 1987 to 1990--were exchange-rate-based consolidations; the other two--Finland 1992 to 1998 and Sweden 1993 to 1998--were undertaken in the opposite circumstances, after abandoning a peg. The analysis addresses two main questions. First, is there evidence that large budget consolidations, particularly those which are based mainly on spending cuts, have expansionary effects in the short run? Second, if the answer to the first question is in the affirmative, how useful is the experience of the past as a guide to the present?