Austerity: When It Works and When It Doesn't. By Alberto Alesina, Carlo Favero, and Francesco Giavazzi,. Princeton: Princeton University Press, 2019. 296 pp. Notes, references, index. Paperback, $22.95. ISBN: 978-0-69120-863-3 .

Austerity: When It Works and When It Doesn't. By Alberto Alesina, Carlo Favero, and Francesco Giavazzi. Princeton: Princeton University Press, 2019. 296 pp. Notes, references, index. Paperback, $22.95. ISBN: 978-0-69120-863-3.

Austerity policies and their theoretical foundations have taken a beating in recent years. The experiences after the 2008 financial crisis confirmed many of the criticisms made against similar programs. Against this backdrop, the present volume offers an attempt to salvage at least some of the pro-austerity arguments made by its authors and others over the years and put them on a new empirical basis.

The authors' main contention is that if public finances get out of balance for whatever reason they will have to be rebalanced and that policymakers and members of the public know this. There are then two ways to balance budgets and pay down debt: raise taxes or cut expenditure. The authors categorize austerity programs between 1981 and 2014 as being expenditure based (EB), tax based (TB), or mixed and compare their impact on growth and debt-to-GDP ratios. Their result is that EB programs are less damaging than TB programs and that the negative impact of the former is very limited, with a 1 percent spending cut resulting only in 0.5 percent reduction of output over a few years. As a result, EB programs are also successful at the aim of reducing the debt-to-GDP ratio that TB programs often miss. The authors suspect that the reason for the different outcomes lies in...