Wednesday, September 15, 2010

History Shows Cutting Spending And Taxes Spurs Economic Growth

From The Wall Street Journal article, "Tax Cuts vs. 'Stimulus': The Evidence Is In: A review of over 200 fiscal adjustments in 21 countries shows that spending discipline and tax cuts are the best ways to spur economic growth." by Harvard Economics Professor Alberto Alesina:
Politicians argue for increased stimulus spending, as opposed to spending cuts, on the grounds that it would speed up economic recovery. This argument might have it exactly backward. Indeed, history shows that cutting spending in order to reduce deficits may be the key to promoting economic recovery.
Economic history shows that even large adjustments in fiscal policy, if based on well-targeted spending cuts, have often led to expansions, not recessions. Fiscal adjustments based on higher taxes, on the other hand, have generally been recessionary.
The evidence from the last 40 years suggests that spending increases meant to stimulate the economy and tax increases meant to reduce deficits are unlikely to achieve their goals. The opposite combination might.
Read the complete article here. If the entire article is not available, try this link.

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