Austerity

Report: European Countries That Cut Spending and Taxes Have Healthiest Economies

Not a shocker

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Cries throughout the media of "savage austerity" notwithstanding, only a handful of European countries have actually implemented austerity in the true sense of the term: reducing both public spending and taxation. On the other hand, most countries in Europe have either been following the exact opposite path—increasing spending and taxation—or have been implementing some combination of the two.

As I explain in my new study, The True Story of European Austerity: Cutting Taxes and Spending Leads to Renewed Growth, carrying out real cuts leads to real growth. The table below shows average annual growth rates for groups of countries (with greater than four members) that have followed varying kinds of austerity policies.

The group of countries that shrunk the size of its public sector from both the spending and revenue sides (group #1) had the highest average annual rate of growth, and it was the only group to maintain this rate above 2 percent—the standard for economic healthiness.