ABSTRACT
This chapter focuses on public economics in an age of austerity. The interplay between academic research and public policy is of central importance to the discipline of public economics. The chapter begins with the relation between public economics and macro-economics. Public economics has become too divorced from other fields, notably macro-economics. In today's economic environment of high unemployment in many countries and high vulnerability to the risk of significant further shocks, shocks that have sizable probabilities, fiscal policy has a far more important role to fill than in the earlier post-war US recessions. Much of the rhetoric of fiscal consolidation is concerned with the national debt as a burden on future generations. National debt is an inter-generational issue. Austerity programmes are defended on the grounds that people need to reduce the debt passed on to the future. Public infrastructure investment tends to suffer particularly in times of austerity.
