January 19, 2010
Tax cuts versus spending
There seems to have been two competing viewpoints over how best to revive the economy: On one side are those who said tax cuts were the best remedy. In the other corner are those advocating more government spending. Is there any evidence to suggest which side is correct?
Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:
"This has been a long-running controversy, both in public policy circles and even in the economics profession. We just have a new study published out of Harvard which looked at all the recessions not only in this country but around the world from 1970 to 2007. And they assessed the impact of different kinds of government policies to fight recessions. Specifically, do you get out of the recession faster if the government cuts taxes? Or do you get out of the recession faster if the government has a spending program?
"Now this is controversial -- I'll say this up front -- but the study concluded that tax cuts actually were the better approach to ending recessions quickly. But that said, I think it is important to point out ... this may not be the only goal of a government during a recession: to get out of a recession fast. They may want, for example, to also cushion the impact of the recession on maybe state budgets or on particular households like low-income households. Both of those goals would require additional spending.
"So even if you could say that, yes, tax cuts are the best way to hasten a recession's end, you still may want to have a government spending program to accomplish these alternative goals."
Posted by deeshore at January 19, 2010 07:44 AM