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. (Emphasis added.)Tax cuts have something going for them after all.
Tuesday, 24 November 2009
Fiscal policy research
New research on fiscal policy by Alberto Alesina and Silvia Ardagna looks at Large changes in fiscal policy: taxes versus spending. The abstract tells us,