Economics
‘A Critical Evaluation of the Economic Consequences of Fiscal Austerity in Irish Republic as a result of the 2008 financial crisis.’
Write a report of 2,500 words on this topic paying close attention to the academic literature and trends in official data from 2005-2015
In the lecture in week 1, we went through the economic rationale for austerity policy and then looked at episodes of expenditure cuts from 1900-2015 in the UK. Our focus was on the length and depth of the cuts and what happened in the years immediately after the cuts in terms of economic growth, unemployment, budget deficit and national debt. At the seminar for this week, we looked at various official sources of data and how to calculate rates of change in various aggregates including percentage change and percentage point change and inflation adjusted values. We noted at the seminar that to look at revenue increases during the period, a similar systematic investigation can be carried out.For this assignment I want you to focus on ONE country (Irish Republic) and critically evaluate the economic consequences of austerity that was pursued as a response to the 2008 crisis.
The report you write needs to cover the following basic areas (while including other issues you consider salient):
1. Briefly explain why the 2008 crisis occurred and critically analyse the economic situation of the country you are looking at, at the start of the crisis. For the latter, use your own data analysis from 2005-2015 supported with contemporary literature.
2. Discuss why fiscal austerity may be an appropriate response to the crisis, according to economic theory1. Define what is meant by ‘austerity’ and why being more specific and using the concept of ‘fiscal squeeze’ may be more appropriate for the analysis you are conducting and the question you are seeking to answer2. Fiscal squeeze refers to both the spending and revenue aspects.
3. Critically discuss what you find through your data analysis about whether fiscal squeeze occurred in response to the crisis and how it correlates with economic variables (e.g., GDP growth, debt, deficit, unemployment, inflation). Compare these trends against what contemporary empirical literature and economic theory says regarding these issues.
4. Data Appendix. You need a clearly organised data appendix with the following information
4.1. A table for the 2005-2015 period showing raw data for your assigned country extracted from an official data source such as the OECD, Eurostat or IMF (or any other official data source you think is appropriate) for variables including Government spending, GDP, GDP deflator, economic conditions.
4.2. Clear reflection of how you have worked out length and depth of the spending cuts and revenue increases (see seminar workings and excel sheets for how you may calculate these figures for spending and the readings to see how you may present such information neatly, perhaps in tables and how to cite sources).
Although the Appendix should include supporting data, it is up to you to decide how you will create and present tables/graphs in the body of your report to support you argument. See page 6 of this brief for further details.
Please keep your appendix short (1 to 2 pages and no more). The appendix won’t count against the word count, but it will be evidence to support the data work you have done.
5. Remember to include an introduction and a conclusion in your overall structure. Again, it is up to you how exactly the essay is structured, and points 1-4 above are key areas you should cover. Remember also not to limit your critical analysis just to these key areas. If there are other points you think are relevant to the case you are considering, you should discuss it.
There is no need to draw IS/LM or AD/AS models. Instead, provide an analysis of alternative theoretical positions as to why austerity policy maybe a suitable response to the crisis.
2 After doing the literature survey, you may feel there is a better way to measure the extent of austerity policy. If so, explain why this may be better compared to the fiscal squeeze concept.
You are not required to conduct regression analysis for this assignment, but use the data to provide a descriptive analysis of what happened with respect to austerity and outcomes during the 2005-2015 era. This descriptive analysis should be placed in the context of the theoretical and empirical literature on the subject. Please DO NOT quote from newspapers, tabloids or blogs, unless pivotal to your central argument.
Learning outcomes:
To be able to extract and use data from key official sources of data.
Be able to critically analyse the data using descriptive techniques
Be able to critically analyse the findings and place it in context of the wider academic literature regarding this area.
Suggested readings
Alberto Alesina & Omar Barbiero & Carlo Favero & Francesco Giavazzi & Matteo Paradisi, 2015. “Austerity in 2009-2013,” NBER Working Papers 20827, National Bureau of Economic Research, Inc.
Alesina, Alberto, and Silvia Ardagna, 2010, “Large Changes in Fiscal Policy: Taxes versus
Spending,” Tax Policy and the Economy, Vol. 24, ed. by Jeffrey R. Brown (Cambridge, Massachusetts: National Bureau of Economic Research).
Boyer,R (2012) The four fallacies of contemporary austerity policies: the lost Keynesian legacy Camb. J. Econ. 36 (1): 283-312 doi:10.1093/cje/ber037
Cottarelli, C (2013) ‘The austerity debate’ in Pagenetto, L. (2013) Public Debt, Global Governance and Economic Dynamism, Springer-Verlag Italia, pp 301-308
Blyth, M (2013), Austerity: The History of a dangerous Idea, Cambridge University Press.
Guajardo, Jaime, Daniel Leigh, and Andrea Pescatori. “Expansionary austerity? International evidence.” Journal of the European Economic Association 12.4 (2014): 949-968.
Himaz, R (2015) ‘The electoral consequences of large fiscal adjustments in the UK: Empirical evidence using data from 1900-2015. https://www.economics.ox.ac.uk/materials/papers/14319/paper-773.pdf
Hood, C, D. Heald and R Himaz (2014), The Politics of Fiscal Squeeze in Perspective, Oxford University Press, Chapter 1, 2 and 4.
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