Difference between Austerity and Keynesian

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Preserving global economic security is a top goal for nations everywhere. Economists and policymakers are always on the lookout for fresh strategies that might improve economic growth or make the economy more stable. Government borrowing, income inequality, poverty rates, the human development index, labor productivity, investment, personal disposable income, and currency exchange rates are all important measures of economic growth. Among the many tools at one's disposal for restoring economic balance are "fiscal constraint" and "growth". Attempts to describe how an economy may become more stable have also made use of the Keynesian theory.

What is Austerity?

To keep the public sector debt under control, a government may select and implement this set of economic strategies. This happens only when the difference between federal revenues and expenditures shrinks. Despite popular belief, economists agree that austerity measures do not necessarily include a decrease in government spending.

These are some examples of types of austerity −

  • This provides evidence supporting increased government spending to stimulate the economy.

  • It emphasizes increasing tax rates while concurrently decreasing discretionary spending.

  • Austerity refers to a time of decreased government spending and increased tax rates.

However, economists are divided on whether or not tax policy affects the federal budget. Former Reagan economic adviser Arthur Laffer argued that reducing tax rates would encourage economic growth, raising household income. In contrast, the conventional wisdom among politicians and economists holds that a hike in tax rates would lead to increased collection of those taxes.

Austerity, which entails reducing government spending, has been deemed the most effective policy. The government may, for instance, cease hiring and instead cut costs by laying off unnecessary personnel or decreasing the interest rate on freshly issued government securities. The government has the option of raising tax rates on income, property, companies, and sales.

Austerity is controversial because large deficits may stifle economic development on a national level, which would have even more negative impacts on the economy.

What is Keynesian?

John Maynard Keynes, a British economist, created this theory of macroeconomics. It focuses on the fluctuations experienced by the economy in the near term. It is considered a demand−side theory since it is based on the idea that monetary outlays have effects on economic variables including output, employment, and inflation.

The idea was groundbreaking because it advocated for a reduction in taxes and increased government expenditure to stimulate demand and rescue a faltering economy.

To paraphrase Keynes, as government spending rises, corporate activity rises, and so does consumer spending. A rise in GDP would result from increased spending because doing so raises income and total output. To put it another way, the idea is that spending one dollar on fiscal stimulus will produce numerous more dollars.

Differences: Austerity and Keynesian

Both Austerity and Keynesian address concerns about an economy's stability. The following table highlights the major differences between Austerity and Keynesian −

Characteristics Austerity Keynesian
Definition The term "austerity" is used to describe a series of economic policies implemented by a government to reduce the national debt. Keynesianism, a macroeconomic thought named after the British economist John Maynard Keynes, places emphasis on fluctuations that occur over relatively short time periods.
Scope Conservatives argue that slashing government expenditure is the most effective method to stimulate the economy. To stimulate demand and lift the economy out of a downturn, proponents of the Keynesian hypothesis argue that governments should spend more money and collect less tax revenue.

Conclusion

The term "austerity" is used to describe a series of economic policies implemented by a government to reduce the national debt. On the other hand, Keynesianism is a macroeconomic economic theory that emphasizes short−term alterations in the economy.

raja
Updated on 30-Nov-2022 12:34:28

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