Austerity versus stimulus: Theoretical perspectives and policy implications

Abstract

Attempts to respond to the negative social and economic effects of the Great Recession have been cast in terms of the austerity versus stimulus debate. Although oversimplified, this debate reflects wider theoretical analyses of market economies and normative prescriptions for enhancing their functioning. Referencing the historical evolution of economic thought, these theories and their policy implications for responding to recessions are summarized and their relevance for social welfare is examined in the light of recent events.