Those who interpreted the IMF’s recent World Economic Outlook as evidence that austerity is self-defeating are mistaken. The fiscal multiplier, which has attracted so much debate, measures the one-off impact of changes in tax or spending on the economy when the adjustment is made. It does not measure the impact of changes in tax or spending on the long-term growth rate. There is little in the study to suggest there is an advantage in postponing adjustment. Continue reading »
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