Feed on

Count another in favor of prudence.

We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007.  Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases.    As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases.  In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions.  We confirm these results with simple regression analysis.

I wonder if Mssrs. Alesina and Aragna will receive warning letters from the Feds for this “misleading” information?

One Response to “Fiscal Stimulus – Tax Reductions or Spending Increases?”

  1. Harry says:

    More evidence that taking our money to spend it more wisely than we fails.

    If Europe is so damn good, why are they so unemployed, and why are they so visibly poor because of it?

    This week and many weeks to follow the Treasury will attempt to borrow several hundred billions. The Fed can write many warning letters, but all the warning letters in the world will not make this exercise cheap.

Leave a Reply