How to reduce fiscal deficits? A tribute to Alberto Alesina

Alberto Alesina died on 23 May 2020. His contributions to political economics are numerous and important, with subjects as varied as inequality and redistributive policies, confidence, political explanation of fiscal deficits, ethnic inequalities, etc. One of his very important contributions is how to reduce a fiscal deficit. Recent studies (see Appendix) shows that fiscal consolidation achieved by reducing public spending or public transfer payments is much less costly in terms of production than fiscal consolidation achieved by raising taxes. We apply this analysis to the strategy for reducing fiscal deficits after the subprime crisis in the large euro-zone countries and show that it is consistent with actual developments. Fiscal consolidation is not austerity if it is achieved by reducing public spending.