On Thursday evening, Prof. Albert Alesina (Harvard University) presented the 21st Barcelona GSE Lecture, "Fiscal policy after the Great Recession," at Banc Sabadell Auditorium in Barcelona.
In his presentation, Prof. Alesina led the audience through his research findings on the effects of fiscal adjustments. Analysis of data from 21 OECD countries that made adjustments between 1970 and today led him to qualify the conventional wisdom that fiscal adjustments lead to recessions.
"Fiscal adjustments based on spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases," Prof Alesina found in his research. "In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions."
Politics as usual
Prof. Alesina went on to examine the general belief that fiscal adjustments lead to negative consequences for the elected officials who implement them. He pointed out that many governments implementing large fiscal adjustments during the time period he studied did end up getting re-elected. To Prof. Alesina, this demonstrates that voters could sometimes reward politicians for fiscal rectitude.
"I am not pessimistic about the average voter," Prof. Alesina said during the post lecture discussion with the audience. However, as other speakers have this year, he recognized that politicians may have distorted incentives for making certain policy choices, and that the timing of the adjustment they choose to implement will affect its success or failure.
"Several countries entered the recession with their fiscal houses not in order," he said. "Now is the time to rein in the deficits in both the United States and Europe. Finally, some of these countries are moving in the right direction," Prof. Alesina said. "The question is: have they waited too long?"
About Prof. Alberto Alesina
|Alberto Alesina (Harvard University) is a member of the National Bureau of Economic Research and the Center for Economic Policy Research. He is a leader in the field of Political Economics and published several books on the subject including The Future of Europe: Reform or Decline (MIT Press, 2006) and Fighting Poverty in the US and Europe: A World of Difference (Oxford University Press, 2005). He is a co-editor of the Quarterly Journal of Economics and has held visiting positions at MIT, Tel Aviv University, University of Stockholm, The World Bank, and the IMF. [full biography]