Increasing surplus: Prioritizing expense reduction for surplus creation

Summer series on our site persists, focusing on economics this time. Weekly topic: Reexamining the common economic viewpoints of 2013. Chapter 2: A preferable approach to budget deficit reduction involves decreasing government spending instead of raising taxes.

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2025 September 11 . 3:37 PM

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Prioritizing deficits reduction, it's wiser to trim spending

Increasing surplus: Prioritizing expense reduction for surplus creation

In the realm of economic policy, a contentious debate is brewing over the best approach to public spending and deficit reduction. At the heart of this debate is the work of Italian economist Alberto Alesina, who has long advocated for reducing public deficits through cuts in public spending rather than increasing taxes.

Alesina's research, particularly on budget consolidation episodes, has been widely influential. However, it has also been subject to criticism, with significant methodological flaws called into question. This spring, calculation errors in the work of Alesina and his colleagues were revealed, casting doubt on the validity of their conclusions about deficit reduction and economic growth.

Despite this, the belief that reducing deficits hurts economic activity less through spending cuts remains widely held, not just among political circles, but also among socialists and business circles. This belief is supported by consensus-based research, which generally suggests that spending cuts are less distortionary and can boost confidence and growth.

However, it's important to note that the nature of the German "success" model or the context of the IMF's warning regarding public deficit reduction are not specified in this discussion. Similarly, the specific social spending that the OECD advises French President Hollande to cut is not detailed.

The OECD, in fact, has advised Hollande to cut social spending, a recommendation that has sparked debate. The IMF has also issued a warning about public deficit reduction, adding to the ongoing discussion.

It's crucial to approach these issues with a discerning eye, as the validity of certain conclusions, such as Alesina's, can be called into question. Yet, the debate continues, with the question of whether to follow the German "success" model for public spending remaining a topic of contention.