| Publication |
2014.
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| Summary/Abstract |
Policymakers in advanced economies tend to postpone reforms and budgetary adjustment, which are politically costly, until the deterioration of financial market sentiment makes these measures unavoidable. Such a strategy is economically costly and politically dangerous. It is costly because once market sentiment deteriorates confidence can be restored only through drastic and much more painful measures. Austerity can be avoided only with a credible reform agenda. The strategy is also dangerous because the argument that "there is no other alternative" cannot be repeated indefinitely by governments that fail to act earlier. The risk that citizens may be attracted to populist solutions increases.
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