Cost of Austerity: Effect of Fiscal Consolidation in Europe Post 2010

Abstract

This paper investigates the effect of fiscal consolidation on GDP per capita following the 2008 Financial Crisis and European Debt Crisis. I use the synthetic control method to assess the GDP performance of three European countries that pursued large quantities of fiscal consolidation: Greece, Spain and Italy. I estimate that without fiscal consolidation GDP per capita would have been 30, 11, and 17 percent higher in each country respectively.