July 21 | The Lead Indicator

Lessons for the US from the Italian Debt Crisis | Dr Sam Chandan describes how Europe’s intractable sovereign debt crisis has engulfed Italy, forcing the adoption of $56 billion in austerity measures that are projected to bring the country’s budget into balance in 2014. Italy is making more progress towards fiscal discipline than the United States, where policymakers are deadlocked over whether to cut back while the recovery remains fragile. The research shows that, under some circumstances, moves towards fiscal discipline can be expansionary. Reviewing the literature, Dr Chandan postulates that "controlling for the fiscal shock, private investment and consumption respond positively to businesses’ and consumers’ expectations of improving fiscal discipline."

Read Dr Chandan’s analysis in the New York Observer column, Lessons for the US in the Italy Crisis.