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October 24, 2012

More evidence that Austerity Will Not Work

Writing about web page http://www.voxeu.org/article/gauging-multiplier-lessons-history

Coming in the wake of the recent IMF U-turn, here is more evidence that the Keynesian fiscal multiplier is much larger than previously assumed. This paper by Almunia, Bénétrix, Eichengreen, O’Rourke and Rua shows that in the depression of the 1930's the multiplier effect of government expenditure on GDP was around 1.6. This suggests quite strongly that the austerity policies being followed in the UK and other countries will only succeed in making the problem worse, depressing the economy without reducing the deficit. This is consistent with what we are seeing.


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