I remember being ~8-9 years old, sitting at the dinner table in the late 1990’s, and openly wondering why the government wasn’t making big cuts and reforms because everything was roaring and booming and it seemed insane to wait until a crisis to make cuts which would be easy to make when everything was so good. I think this ultimately made events 10 years later more shocking to my young mind.
"Their findings challenge one of the central assumptions of modern Keynesian macroeconomics: that spending cuts necessarily impose larger economic costs than tax increases."
OK, I'm not a macroeconomist, but I never overhed this idea, much less that it is "central." A priori eiher could be the case. It woud depend on the initial conditions Where are the margins? what is the DWL of the marginal tax increase vs the DLW of the marginal expenditure to be cut? I can't see how looking cross country could address this.
Take the US for example. Consolidation by substituting a VAT for FICA and a progressive consumption tax for the personal and business income tax would reduce DWL. Reducing expenditures on farm and ethanol and most "green" subidies would reduce DWL, reducing social insurance benefits very little and on science and technology loss would increase.
"Tax" vs "Expenditure" seem far to crude to do much good.
I agree that tax and expenditure are crude categories that hide a lot of nuance, but at a basic level, Keynesians expect government spending to have higher multipliers than tax cuts because some of the latter is saved. But you were right to point out earlier that return on investment is a much better way to think of governemnt spending than multipliers.
"Fiscal consolidation, whether achieved through spending cuts or tax increases, reduces aggregate demand and slows economic activity, especially when the economy is operating below capacity."
No. Fscal consolidation ought not reduce economic activity, reduce employment of resources. And provied monetary policy is doing its job, it will not.
I remember being ~8-9 years old, sitting at the dinner table in the late 1990’s, and openly wondering why the government wasn’t making big cuts and reforms because everything was roaring and booming and it seemed insane to wait until a crisis to make cuts which would be easy to make when everything was so good. I think this ultimately made events 10 years later more shocking to my young mind.
"Their findings challenge one of the central assumptions of modern Keynesian macroeconomics: that spending cuts necessarily impose larger economic costs than tax increases."
OK, I'm not a macroeconomist, but I never overhed this idea, much less that it is "central." A priori eiher could be the case. It woud depend on the initial conditions Where are the margins? what is the DWL of the marginal tax increase vs the DLW of the marginal expenditure to be cut? I can't see how looking cross country could address this.
Take the US for example. Consolidation by substituting a VAT for FICA and a progressive consumption tax for the personal and business income tax would reduce DWL. Reducing expenditures on farm and ethanol and most "green" subidies would reduce DWL, reducing social insurance benefits very little and on science and technology loss would increase.
"Tax" vs "Expenditure" seem far to crude to do much good.
I agree that tax and expenditure are crude categories that hide a lot of nuance, but at a basic level, Keynesians expect government spending to have higher multipliers than tax cuts because some of the latter is saved. But you were right to point out earlier that return on investment is a much better way to think of governemnt spending than multipliers.
I was suggesting you not use Keynesian language.
"Fiscal consolidation, whether achieved through spending cuts or tax increases, reduces aggregate demand and slows economic activity, especially when the economy is operating below capacity."
No. Fscal consolidation ought not reduce economic activity, reduce employment of resources. And provied monetary policy is doing its job, it will not.
True, Abenomics in Japan was a good example of this