{"id":31785,"date":"2018-03-01T15:09:16","date_gmt":"2018-03-01T20:09:16","guid":{"rendered":"http:\/\/olduvai.ca\/?p=31785"},"modified":"2018-03-01T15:09:16","modified_gmt":"2018-03-01T20:09:16","slug":"when-americas-fiscal-crisis-hits-be-forewarned-that-tax-increases-will-make-a-bad-situation-worse","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=31785","title":{"rendered":"When America\u2019s Fiscal Crisis Hits, Be Forewarned that Tax Increases Will Make a Bad Situation Worse"},"content":{"rendered":"
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When America\u2019s Fiscal Crisis Hits, Be Forewarned that Tax Increases Will Make a Bad Situation Worse<\/a><\/h3>\n
When America’s fiscal crisis hits, remember that raising taxes will only exacerbate the problem.<\/strong><\/div>\n
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At some point in the next 10 years, there will be a huge fight in the United States over fiscal policy. This battle is inevitable because politicians are violating\u00a0the Golden Rule of fiscal policy<\/a>\u00a0by allowing government spending to grow faster than the private sector (exacerbated by the\u00a0recent budget deal<\/a>), leading to ever-larger budget deficits.<\/p>\n

I\u2019m\u00a0more sanguine about red ink<\/a>\u00a0than most people. After all, deficits and debt are\u00a0merely symptoms<\/a>. The real problem is\u00a0excessive government spending<\/a>.<\/p>\n

But when peacetime, non-recessionary deficits climb above $1 trillion, the political pressure to adopt some sort of \u201causterity<\/a>\u201d package will become enormous. What\u2019s critical to understand, however, is that not all forms of austerity are created equal.<\/p>\n

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The crowd in Washington reflexively will assert that higher taxes are necessary and desirable. People like me will respond by explaining that the\u00a0real problem is entitlements<\/a>\u00a0and that we need\u00a0structural reform<\/a>\u00a0of programs such as\u00a0Medicaid<\/a>\u00a0and\u00a0Medicare<\/a>. Moreover, I will point out that higher taxes most likely will simply\u00a0trigger and enable additional spending<\/a>. And I will warn that tax increases will\u00a0undermine economic performance<\/a>.<\/p>\n

Regarding that last point, three professors, led by\u00a0Alberto Alesina at Harvard<\/a>, have unveiled\u00a0some new research<\/a>\u00a0looking at the economic impact of expenditure-based austerity compared to tax-based austerity.<\/p>\n

\u2026we started from detailed information on the consolidations implemented by 16 OECD countries between 1978 and 2014. \u2026we group measures in just two broad categories: spending, g, and taxes, t. \u2026We distinguish fiscal plans between those that are expenditure based (EB) and those that are tax based (TB)\u2026 Measuring the macroeconomic impact of a plan requires modelling the relationship between plans and macroeconomic variables.<\/p><\/blockquote>\n

Here are their econometric results.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/section>\n","protected":false},"excerpt":{"rendered":"

When America\u2019s Fiscal Crisis Hits, Be Forewarned that Tax Increases Will Make a Bad Situation Worse When America’s fiscal crisis hits, remember that raising taxes will only exacerbate the problem. At some point in the next 10 years, there will be a huge fight in the United States over fiscal policy. This battle is inevitable […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[40,14989,14323,14991,12584,10739,19023,1257],"class_list":["post-31785","post","type-post","status-publish","format-standard","hentry","category-economics","tag-austerity","tag-daniel-j-mitchell","tag-fiscal-policy","tag-foundation-for-economic-education","tag-government-spending","tag-policy","tag-tax-increases","tag-taxation"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/31785","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=31785"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/31785\/revisions"}],"predecessor-version":[{"id":31786,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/31785\/revisions\/31786"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=31785"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=31785"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=31785"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}