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Thursday, January 7, 2016

Simon Wren-Lewis : "The Knowledge Transmission Mechanism and Austerity"


How do economic policy mistakes happen? One view is that
policy makers are benevolent, and errors arise because economic
theories are inadequate. Another is that policy makers
pursue sectional interests that may have no relation to any academic
consensus on good policy. This paper examines a third
alternative: policy makers want to do the right thing (although
they have political preferences), and the academic consensus is
correct, but policy makers do not follow it because they rely on
imperfect intermediaries. I use this framework to examine the
global switch to fiscal austerity in 2010.

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