Another historical example of contemporary austerity is Fascist Italy during a liberal period of the economy from 1922 to 1925. During the United States occupation of Haiti that began in 1915, the United States utilized austerity policies where American corporations received a low tax rate while Haitians saw their taxes increase, with a forced labor system creating a "corporate paradise" in occupied Haiti. The origin of modern austerity measures is mostly undocumented among academics. Alberto Alesina, Carlo Favero, and Francesco Giavazzi argue that austerity can be expansionary in situations where government reduction in spending is offset by greater increases in aggregate demand (private consumption, private investment, and exports). Where there is excess capacity, the stimulus can result in an increase in employment and output. For example, when an economy is operating at or near capacity, higher short-term deficit spending (stimulus) can cause interest rates to rise, resulting in a reduction in private investment, which in turn reduces economic growth. Theoretically in some cases, particularly when the output gap is low, austerity can have the opposite effect and stimulate economic growth. The result was increased debt-to-GDP ratios despite reductions in budget deficits. In the aftermath of the Great Recession, austerity measures in many European countries were followed by rising unemployment and slower GDP growth. In both cases, if reduced government spending leads to reduced GDP growth, austerity may lead to a higher debt-to-GDP ratio than the alternative of the government running a higher budget deficit. In the longer term, reduced government spending can reduce GDP growth if, for example, cuts to education spending leave a country's workforce less able to do high-skilled jobs or if cuts to infrastructure investment impose greater costs on business than they saved through lower taxes. Reduced government spending can reduce gross domestic product (GDP) growth in the short term as government expenditure is itself a component of GDP. Where austerity policies are enacted using tax increases, these can reduce consumption by cutting household disposable income. These reductions in employment usually occur directly in the public sector and indirectly in the private sector. In most macroeconomic models, austerity policies which reduce government spending lead to increased unemployment in the short term. Proponents of these measures state that this reduces the amount of borrowing required and may also demonstrate a government's fiscal discipline to creditors and credit rating agencies and make borrowing easier and cheaper as a result. The measures are meant to reduce the budget deficit by bringing government revenues closer to expenditures. Austerity measures are often used by governments that find it difficult to borrow or meet their existing obligations to pay back loans. There are three primary types of austerity measures: higher taxes to fund spending, raising taxes while cutting spending, and lower taxes and lower government spending. In economic policy, austerity is a set of political-economic policies that aim to reduce government budget deficits through spending cuts, tax increases, or a combination of both.
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