Ireland’s 1987 austerity case combined cuts with devaluation and wage moderation

Evidence

The one country that routinely appears in the list of positive cases of expansionary austerity is Ireland in the late 1980s. Going back to the discussion in “Tales,” Alesina and Ardanga narrate Ireland’s experience from 1987–1989 as follows. When Irish debt to GDP reached 116 percent in 1986, a right-wing government came to power that cut transfers, the government wage bill, and taxes. Devaluation and negotiated wage moderation reduced unit labor costs by 12 to 15 percent. Growth rates and foreign investment both soared. Key to all this, as before, was the large expenditure-based cut plus wage moderation and devaluation. — Mark Blyth, Austerity, 565

Categorization

• XREF: Ireland is the other canonical positive case; note that devaluation — the very thing austerity typically rules out — was crucial, which undercuts the pure-cuts narrative. Relevant to Mattei. — connects to: Expansionary adjustment required cuts plus wage moderation plus prior devaluation — Mark Blyth, Austerity: The History of a Dangerous…, 464; Expectations-based expansionary austerity theory rests on Denmark and Ireland cases — Mark Blyth, Austerity: The History of a Dangerous…, 457; Iceland and Ireland offer a natural experiment comparing austerity with bank default — Mark Blyth, Austerity: The History of a Dangerous…, 638 (+2 more)

Broader Connections

• Expansionary adjustment required cuts plus wage moderation plus prior devaluation #corroborates (0.95) — Mark Blyth, Austerity, 464
• Expectations-based expansionary austerity theory rests on Denmark and Ireland cases #exemplifies (0.85) — Mark Blyth, Austerity, 457
• Iceland and Ireland offer a natural experiment comparing austerity with bank default #qualifies (0.80) — Mark Blyth, Austerity, 638
• Expansionary austerity cases depend on conditions absent in the Eurozone #qualifies (0.78) — Mark Blyth, Austerity, 483