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Idea of the Day: Austerity Since the Great Recession

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The global collapse of tax revenues was one of the major challenges that policymakers confronted during the Great Recession. The Bush and Obama administrations both responded to recessions early in their terms by stimulating the economy. Governments typically counter the shortfall of demand that occurs during a recession by reducing taxes or increasing spending, an approach that former President John F. Kennedy once defended by asking, “Don’t you remember your Economics 101?”

Other governments, however, had made budget commitments that gave them less latitude in their fiscal policy approaches. Instead of stimulating the economy, they implemented austerity measures, including slashing spending and raising taxes in the face of the Great Recession.

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