IMF: Spending Cuts Slow Growth More Than Tax Hikes
December 6, 2012 by Sam Rolley
A new study conducted by the International Monetary Fund (IMF) takes into account decades of economic data about the world’s industrialized nations to examine how changes in government spending affects economic output.
According to the report, which researchers say is the first of its kind, fiscal negotiators in the United States would do well to tread lightly in coming weeks as they work to flesh out an agreement over the Nation’s economic problems. The IMF paper says that in its current state of recovery from the 2008 recession, cutting too much government spending could stall growth in the overall economy. The researchers predict that for every dollar the government cuts, it is possible that $1.80 in economic output will disappear having a “statistically significant…and sizeable” negative economic impact.
The paper goes on to indicate that raising taxes on Americans by one percent would only knock 0.1 percent out of the overall economy.
The paper indicates that however the fiscal negotiators tackle the economic recovery process, IMF suggests 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,’” the paper says.