Austerity measures provide long-term benefits: Bank of Portugal paper
A Bank of Portugal paper, published on Monday, says that although countries undertaking fiscal consolidation incur short-term losses in welfare, in the long term it leads to a net improvement in welfare.
Vanda Almeida, Gabriela Lopes de Castro, Ricardo Mourinho Félix, José Ramos Maria, the paper's authors, use a New-Keynesian general equilibrium model to examine the costs and benefits of undertaking fiscal consolidation in a small euro area economy.
The results show that in the long run, fiscal
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