Salim Furth, Et. al, “Europe’s Fiscal Crisis Revealed: An In-Depth Analysis of Spending, Austerity, and Growth,” Heritage Foundation Special Report No. 147, June 6, 2014,
This report examines not just what the governments in Europe and elsewhere said, but what they actually did, with precise technical descriptions and analysis. Some reduced spending, others increased taxes, and some pursued a combination of the two. The data reveal that the governments did not always follow through with their plans as originally envisioned. This report demonstrates that not all methods of fiscal restraint were equal: Increasing taxes was more damaging to the economy and less effective in reducing deficits than spending cuts. The effective way to shrink deficits—reducing spending—leads to stronger economic growth over time, while the counterproductive way—tax increases—leads to slower economic growth and lingering ill effects with less deficit reduction than advertised.
As the United States faces a flood of annual fiscal deficits and a tsunami of unfunded future liabilities, at some point, our policymakers will need to take more of the people’s money or spend less. Thanks to this report, policymakers can refer to unambiguous data for guidance.