Experience Stern | News & Events

Excerpt from VoxEU -- "Fiscal adjustments based upon spending cuts are much less costly in terms of short-run output losses than those based upon tax increases. Adjustments based on tax increases are associated with large and prolonged recessions, whether the adjustment starts in a recession or not. The dynamic response of the economy to a consolidation programme does depend on whether it is adopted in a period of economic expansion, but the size of this source of non-linearity is small relative to the effect that depends on whether the consolidation is tax-based or expenditure-based."

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