Why Yes, It Really Is Insanity To Raise Taxes When The Economy Is So Weak

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).

taxes spending

Photo: IMF

Here’s the effect on GDP. Again, the impact of a tax hike (blue line) is much worse.

taxes spending

Photo: IMF

And finally, a look specifically at demand.

taxes spending

Photo: IMF

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.