In the lecture in week 1, we went through the economic rationale for austerity policy and then looked at episodes of expenditure cuts from 1900-2015 in the UK. Our focus was on the length and depth of the cuts and what happened in the years immediately after the cuts in terms of economic growth, unemployment, budget deficit and national debt. At the seminar for this week, we looked at various official sources of data and how to calculate rates of change in various aggregates including percentage change and percentage point change and inflation adjusted values. We noted at the seminar that to look at revenue increases during the period, a similar systematic investigation can be carried out.For this assignment I want you to focus on ONE country (Irish Republic) and critically evaluate the economic consequences of austerity that was pursued as a response to the 2008 crisis.
The report you write needs to cover the following basic areas (while including other issues you consider salient):
1. Briefly explain why the 2008 crisis occurred and critically analyse the economic situation of the country you are looking at, at the start of the crisis. For the latter, use your own data analysis from 2005-2015 supported with contemporary literature.
2. Discuss why fiscal austerity may be an appropriate response to the crisis, according to economic theory1. Define what is meant by ‘austerity’ and why being more specific and using the concept of ‘fiscal squeeze’ may be more appropriate for the analysis you are conducting and the question you are seeking to answer2. Fiscal squeeze refers to both the spending and revenue aspects.
3. Critically discuss what you find through your data analysis about whether fiscal squeeze occurred in response to the crisis and how it correlates with economic variables (e.g., GDP growth, debt, deficit, unemployment, inflation). Compare these trends against what contemporary empirical literature and economic theory says regarding these issues.
4. Data Appendix. You need a clearly organised data appendix with the following information
4.1. A table for the 2005-2015 period showing raw data for your assigned country extracted from an official data source such as the OECD, Eurostat or IMF (or any other official data source you think is appropriate) for variables including Government spending, GDP, GDP deflator, economic conditions.
4.2. Clear reflection of how you have worked out length and depth of the spending cuts and revenue increases (see seminar workings and excel sheets for how you may calculate these figures for spending and the readings to see how you may present such information neatly, perhaps in tables and how to cite sources).
Although the Appendix should include supporting data, it is up to you to decide how you will create and present tables/graphs in the body of your report to support you argument. See page 6 of this brief for further details.
Please keep your appendix short (1 to 2 pages and no more). The appendix won’t count against the word count, but it will be evidence to support the data work you have done.
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