IMF: Budget cuts hurt growth a lot. But tax increases barely matter.

[TomCADem]

Source: Washington Post

A new study (pdf) by the International Monetary Fund raises a further warning flag for fiscal cliff negotiators in the U.S. In what it bills as the first-ever study of its kind, the fund analyzed decades of data on the world’s major industrialized countries to estimate how changes in government spending or revenue affect economic output.

The news isn’t good. Given current circumstances, with a U.S. economy that is growing but still trying to make up lost ground from the 2008 crisis, a one dollar change in government spending could knock as much as $1.80 in output from the economy – what fund researchers called a “statistically significant…and sizeable” outcome.

One brighter spot that could also influence negotiators: the growth impact of a tax hike is estimated to be negligible. The list of measures that automatically become law absent an agreement include both spending reductions and tax increases. While the spending cuts would comprise a heavy drag on growth, the fund paper suggests that a one percent rise in tax revenue would knock just 0.1 percent from gross domestic product.

Overall, however, the paper reinforces what has become the IMF’s recent mantra on cutting government deficits: in a recovery that remains vulnerable, slower is better: “When feasible a more gradual fiscal…consolidation is likely to prove preferable to an approach that aims at ‘getting it over quickly.’”


Read more: http://www.washingtonpost.com/blogs/wonkblog/wp/2012/12/05/imf-budget-cuts-hurt-growth-a-lot-but-tax-increases-barely-matter/

[6spokewheels]

1. they ain't buying that!

I'm sure the pukes are already at work to squelch this report, too.

[MannyGoldstein]

2. Democrats too:

http://www.democraticunderground.com/?com=view_post&forum=1014&pid=327619

[muriel_volestrangler]

4. You are aware that the IMF report is against spending cuts, aren't you?

And thus the IMF report suggests that the fiscal cliff is a Bad Thing, and a deal to avoid its spending cuts, but tax at least the rich more, would therefore be a Good Thing for the IMF?

I wonder, because you linked to a story about Obama trying to avoid the fiscal cliff - you know, like the IMF report suggests.

[muriel_volestrangler]

3. Bias from that writer: "the news isn't good"

In fact, it seems pretty good news, to me. It indicates that government has a way to increase GDP - spend money (I presume it has to be spent wisely; but there are plenty of infrastructure projects to be done, public service areas like education and policing to be fully staffed at reasonable pay rates and so on). It also indicates that the "don't tax job creators" mantra is a myth. Thus we can, at the same time as growing the GDP with prosperity-inducing and poverty-cutting measures, keep the deficit within bounds by raising taxes, on those who are already prosperous.

[jtuck004]

5. I'm near certain that their advice is slanted toward keeping the assets of the rich

supported, by using the resources of everyone else.

[Overseas]

6. K&R. Recognition of the value of government spending. Give it to the top and you get more hoarding.

[jwirr]

7. Someone at the IMF must have learned a lesson or two from their days of forcing austerity on

third world countries along with the Chicago Boys. Disaster capitalism and trickle down do not work.