Increasing Taxes or Spending Cuts: What Is More Effective for Fiscal Consolidation?

Since World War II, raising public spending has been one of the main policies to address recessions. A wealth literature about austerity and fiscal consolidation published analyze different stabilization plans executed by several countries worldwide. This paper aims demonstrate that based on cuts are more effective in achieving finance equilibrium boosting growth employment. We focus analysis four examples: Germany, Ireland, Spain, Chile, reach three conclusions. First, where excessive deficit avoided register stronger economic stability sustainability than with imbalances. Second. show empirical evidence taxes. Third. In times critical stress, taxes cutting may be needed make effective. Tax cannot revenues at any cost. Overall, we overwhelming constant increases generate negative multipliers, making economy less productive reducing GDP potential.