There’s more good stuff from the IMF report we discussed earlier on the subject of post-recession fiscal contractions.
A key theme is that if you must reduce debt-to-GDP then spending cuts, not tax hikes, really are the way to go.
The three charts below come from data collected from over 100 fiscal contractions.
Here, for example, is the effect on unemployment rate. The blue line represents the impact of tax hikes on unemployment — it’s clearly worse — and the red line represents spending cuts (the dotted lines represent standard error bands).
Here’s the effect on GDP. Again, the impact of a tax hike (blue line) is much worse.
And finally, a look specifically at demand.
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