With the Eurozone economy weakening, many commentators are calling on the European Central Bank (ECB) to provide fresh stimulus. But what if the diverse monetary policy tools used by the ECB since the financial crisis have reached the limits of their effectiveness in promoting recovery? Could European governments contribute to stimulating the economy by increasing public spending or reducing taxes? And should fiscal policy now be focused more on raising demand by ‘loosening the public purse strings’ than on reducing public debt?
Keyword: fiscal policy
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This week's IGM Economic Experts Panel statement:
Long run fiscal sustainability in the US will require some combination of cuts in currently promised Medicare, Medicaid and Social Security benefits and/or tax increases that include higher taxes on households with incomes below $250,000.
This week’s IGM Economic Experts Panel statement:
In 10 years, per capita purchasing power in Greece will be higher if — rather than continuing to service its debts over the next decade and complying with the budget rules currently in place — it refuses to accept a continuation of its current troika program and explicitly defaults on its debt held by the official sector.
This week’s IGM Economic Experts Panel statements:
A: Because of the American Recovery and Reinvestment Act of 2009, the U.S. unemployment rate was lower at the end of 2010 than it would have been without the stimulus bill. (The experts panel previously voted on this question on February 15, 2012. Those earlier results can be found here.)
B: Taking into account all of the ARRA’s economic consequences — including the economic costs of raising taxes to pay for the spending, its effects on future spending, and any other likely future effects — the benefits of the stimulus will end up exceeding its costs.
This week’s IGM Economic Experts Panel statements:
A: If the United States fails to make scheduled interest or principal payments on government debt securities, even as an unintended consequence of political brinksmanship, US families and businesses are likely to suffer severe economic harm.
B: With or without a default, current uncertainty over future taxing and spending policies of the US government is likely to depress private investment and hiring by enough to reduce GDP growth by at least a quarter of a percentage point over the next 12 months.
This week’s IGM Economic Experts Panel statement:
Sustained tax and spending policies that boost consumption in ways that reduce the saving rate are likely to lower long-run living standards.
This week’s IGM Economic Experts Panel statement:
Countries that let their debt loads get high risk losing control of their own fiscal sustainability, through an adverse feedback loop in which doubts by lenders lead to higher government bond rates, which in turn make debt problems more severe.
This week’s IGM Economic Experts Panel statement:
Because all federal spending and taxes must be approved by both houses of Congress and the executive branch, a separate debt ceiling that has to be increased periodically creates unneeded uncertainty and can potentially lead to worse fiscal outcomes.
This week’s IGM Economic Experts Panel statement:
Long run fiscal sustainability in the U.S. will require cuts in currently promised Medicare and Medicaid benefits and/or tax increases that include higher taxes on households with incomes below $250,000.
This week’s IGM Economic Experts Panel statement:
If the fiscal changes that are planned under current US law take place next year — including Bush era tax cuts expiring, Medicare payment rates to doctors being cut, the AMT applying to many more taxpayers, and automatic cuts in defense and non-defense discretionary spending kicking in — then US real GDP growth in 2013 will be lower than it would be under the CBO's alternative fiscal scenario, in which the above changes do not occur.
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