This hypothesis was introduced by Francesco Giavazzi and Marco Pagano in 1990 in a paper that used the fiscal restructurings of Denmark and Ireland in the 1980s as examples.
The German view also includes the more traditional assumption that reducing government expenditures as a percent of GDP will lessen crowding out, making "room for the private sector to expand"[1] which only operates when the economy is near full employment.
The authors also did not provide a model for EFC but rather described conditions under which it was observed in Denmark from 1983–84 and Ireland from 1987–89, a period when the world was undergoing rapid interest rate declines and worldwide growth.
[2] An analysis of EFC using Neo-Keynesian modeling concluded that while there were situations in which consumption could be increased through fiscal contraction in all cases it was negative or neutral to employment so there must have been additional factors at work to explain the reduction in unemployment in Denmark and Ireland in the 1980s.
[3] An IMF working paper[4] by Guajardo, Leigh, and Pescatori[5] published in Journal of the European Economic Association on Expansionary Austerity and the Expansionary Fiscal Contraction hypothesis that examined changes in policy designed to reduce deficits found that austerity had contractionary effects on private domestic demand and GDP.