This US survey examines (a) When economic policy-makers are unable to commit credibly in advance to a specific decision rule, they will often follow a poor policy trajectory; (b) Rules-based fiscal policies deliver substantially better outcomes than purely discretionary, on the spot, policy choices.
Keyword: fiscal policy
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Amid
This week's US Economic Experts Panel statements:
A) Restoring the top individual federal income tax rate to 39.6% for incomes over $400,000 (from the current 37%) and taxing the capital gains and dividends of taxpayers with income over $1 million at that top rate (instead of the current preferential rate of 20%), with no other associated changes in taxes or spending, would be unlikely to hurt economic growth noticeably.
B) Restoring the top tax rate, removing the preferential rate on capital gains and dividends, and raising the corporate tax rate from 21% to 28%, with no other associated changes in taxes or spending, would be likely to lead to a meaningful sustained reduction in fiscal deficits.
This week’s IGM European Economic Experts Panel statements:
A) Right now, the central focus of fiscal policy should be on temporary measures to provide protection and promote rapid economic recovery rather than trying to advance other objectives, such as reducing debt, tackling climate change or addressing inequality.
B) Cutting taxes on firms (or delaying tax collection) will allow more of them to survive and be more effective than public spending for triggering a rapid economic recovery.
C) European recovery fund disbursements to crisis-hit countries should be primarily in the form of grants rather than loans.
D) European recovery fund disbursements to crisis-hit countries should not be made on condition of commitments to reform by recipients.
This week’s IGM Economic Experts Panel statements:
A) Assuming that additional federal spending were to be structured as in the CARES Act, a substantial further spending program now will ultimately be less costly than a smaller program because it will better help to avoid long-term economic damage and promote a stronger recovery.
B) Having a fiscal rule that increases social spending on programs like unemployment insurance and SNAP based on the conditions of the economy would be an improvement on the discretionary way in which these programs are currently operated.
This week’s IGM European Economic Experts Panel statements:
A) Severe lockdowns – including closing non-essential businesses and strict limitations on people’s movement – are likely to be better for the economy in the medium term than less aggressive measures.
B) While national governments have responded to the crisis with substantial economic policy measures, a joint euro area fiscal response is still highly desirable.
C) Given the willingness of the European Central Bank to buy sovereign bonds, including Italian bonds, without limits, there is no need for ‘coronabonds’.
This week’s IGM European Economic Experts Panel statements:
A) Germany's current account surplus is undesirable even from a purely German viewpoint: the country would be better off if, for example, it ran a smaller primary surplus, in turn leading to a smaller current account surplus.
B) The Eurozone would be in better shape if fiscal policy were more expansionary, which would allow monetary policy to be slightly less so.
C) If there is a recession in the Eurozone, it will be essential to have a coordinated fiscal expansion.
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