Denmark’s consolidation was roughly half spending cuts and half tax increases

Evidence

We begin with Denmark, Giavazzi and Pagano’s best case, but one that Alesina and Ardanga chose to label as “mixed.” Alesina and Ardanga note that the size of the adjustment in Denmark was large, around 10 percent of GDP, and was “divided about equally between spending cuts and tax increases.” They argue that centralized wage-bargaining institutions held the line on wage growth while the currency was pegged rather than devalued. This led to a disinflation rather than a devaluation, which nonetheless led to falling unit labor costs. Alesina and Ardanga do note, however, that after the initial successful consolidation, growth fell dramatically in 1988–1989 while unemployment rose, the main cause of which was the end of centralized wage bargaining—thus for them the case is “mixed.” — Mark Blyth, Austerity, 562

Categorization

• XREF: Connects to the expansionary austerity debate in Mattei’s work on austerity’s intellectual history; the Denmark case is the canonical ‘success’ example these authors built the theory on. — connects to: Denmark’s austerity cuts occurred during a boom, not a slump — Mark Blyth, Austerity: The History of a Dangerous…, 564