Expectations-based expansionary austerity theory rests on Denmark and Ireland cases

Evidence

Specifically, if “the indirect effect … [on] expectations of the measures taken are understood to be part of a credible … program of consolidation, designed to permanently reduce the share of government in GDP … [and thus] taxation in the future,” then the shift in expectations will bring forth an expansion greater than the contraction caused by budget cuts. Inspired by this “German view,” Giavazzi and Pagano went looking for similar cases and found two: Denmark and Ireland. While most Western European countries went through a punishing recession in the early 1980s, Denmark and Ireland, a bit later in the decade, cut spending and their economies expanded, Ireland being “the most prominent example of an expansionary cut in public spending.” — Mark Blyth, Austerity, 457

Categorization

• XREF: The mechanism — credible cuts shift expectations of future taxation and unleash growth — is the exact theoretical heart that Mattei and critics dismantle; good anchor for a contrast. — connects to: Expansionary austerity cases depend on conditions absent in the Eurozone — Mark Blyth, Austerity: The History of a Dangerous…, 483; Expansionary austerity theory relies on rational consumer expectations and shrinks to ever fewer cases. — Mark Blyth, Austerity: The History of a Dangerous…, 559; Denmark’s austerity cuts occurred during a boom, not a slump — Mark Blyth, Austerity: The History of a Dangerous…, 564 (+11 more)
• SEED: Angle: how a two-nation anecdotal sample became the canonical evidence base for a global policy — the thin empirical foundation of expansionary austerity.

Broader Connections

• Expansionary-austerity theory traces directly to the 1981 German Council of Economic Advisors #corroborates (0.80) — Mark Blyth, Austerity, 456
• Austerity theory only holds in a special case unlike actual economies #qualifies (0.75) — Mark Blyth, Austerity, 480