Central Bank of Chile paper links instability to austerity

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A Central Bank of Chile paper, published on February 12, 2011, finds evidence that the risk of political instability increases as economies undertake fiscal austerity measures.

Joachim Voth, the paper's author, examines cross-country evidence from 11 South American countries from 1937 to 1995 to measure the extent to which societies become unstable after budget cuts.

The results show a clear positive correlation between austerity and instability as reductions in spending strongly increase the

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