Government policies can exacerbate debt crises from "summary" of House of Debt by Atif Mian,Amir Sufi
Government policies play a crucial role in determining the severity and duration of debt crises. When policymakers fail to address the root causes of the problem, they risk making the situation worse. For instance, implementing austerity measures during a debt crisis can have devastating consequences. By cutting government spending and raising taxes, policymakers reduce aggregate demand, leading to a further economic downturn. Moreover, austerity measures can exacerbate the debt burden by weakening the economy and reducing tax revenues. This creates a vicious cycle where the debt continues to grow despite efforts to reduce it. In addition, austerity measures can increase inequality by disproportionately affecting the most vulnerable members of society. This not only harms social cohesion ...
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