Cuts lead to expansion and “have far superior effects on growth than those based on increases in tax revenues.” This time around Alesina and Ardanga even smuggle a quasi-Laffer curve into the piece, whereby cutting spending (rather than taxes) leads to more tax revenues, whereas “they [taxes] go down quite significantly in expansionary adjustments.” Most significantly, successful adjustments see welfare transfers fall, while unsuccessful adjustments see them rise. As such, the welfare state has to go because “it is very difficult if not impossible to fix public finances when in trouble without solving the question of automatic increases in entitlements.” And in complete contrast to what Keynesians believe, government spending lowers growth, since “a one percentage point higher increase in the current spending to GDP ratio is associated with a 0.75 percentage point lower growth.”

Mark Blyth, Austerity, loc. 473