by Salim Furth
The Heritage Foundation
November 14, 2013
U.S. policymakers pursued deficit reduction (also called “fiscal consolidation” or “austerity”) twice in 2013. As economists have shown in dozens of papers, how a country goes about reducing deficits matters a lot in determining the economic impact of the deficit reduction. Deficit reduction based on tax increases can cause deep and immediate economic losses. The U.S. implemented both tax increases and spending cuts in 2013, but the tax increases were two to four times larger. Taking into account that the tax increases were larger and that tax increases have larger economic effects, we can safely conclude that any “austerity”-induced slowdown is due primarily to tax increases. Neither the basic historical facts nor the economic research on the topic give support to the idea that sequestration is the villain in 2013’s poor economic growth.

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