Timmy Elsewhere

At the ASI.

If we do need a fiscal boost should we have it by cutting taxes or by increasing spending?

2 thoughts on “Timmy Elsewhere”

  1. I’m shocked – *shocked* – to see that Tim’s piece at the ASI favoured tax cuts over increased government spending 😉

    Tim adds: I know, I know….

  2. I agree that tax cuts would be better than increased spending. However, this is the bit I object to:

    Households that depend on credit to finance their consumption will be most affected by the credit crunch and are thus most likely to react to a tax cut by maintaining their consumption. For this type of household, a tax cut (or an increase in expenditure) will be an effective tool to prevent an even sharper drop in consumption.

    However, for households that do not depend on credit, the situation is quite different. Households that are saving anyway will probably at present just increase their savings in response to an increase in their disposable income that they know to be temporary.

    I don’t doubt the accuracy of this assessment, but I object to the idea that tax cuts should be focused on the spendthift who caused this mess in the first place. Households and countries who “depend on credit to finance their consumption” need to reduce their consumption. The consequences of fiscal and monetary policies that try to avoid this reality will be worse than the recession caused by reduced consumption.

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