Skip to comments.What's the better austerity: more spending cuts or more taxes?
Posted on 08/22/2011 7:24:27 AM PDT by SeekAndFind
In the debate over the effects of fiscal austerity on growth, all sides can point to examples that seem to help their case.
Those who argue that deficit reduction can help growth can point to the Baltic states who pushed through even tougher measures than for example Greece and Portugal, and who are now booming, with Estonia seeing GDP increase 8.4% compared to a year earlier, Lithuania 6.1% and Latvia 5.3%.
On the other hand we can see that growth in for example Britain and Portugal has slowed considerably, and in Greece we have seen a 6.9% contraction the latest year (that came after a 4% contraction in the year to Q2 2010).
How can this difference be explained? Floating exchange rate advocates often claim that a floating exchange rate is vital for successfull fiscal consolidation but that is clearly not a theory supported by these facts as the Baltic states have all had fixed exchange rates to the euro, with Estonia recently formally adopting the euro as currency. There are 3 explanations.
The first is initial position in the business cycle. The Baltic states had in 2009 suffered a full blown depression with GDP dropping around 20% and unemployment increasing to nearly 20%, while Greece in 2009 had only had a very mild contraction, with countries like Britain and Portugal coming in between. Most of the malinvestments had been cleaned out in the Baltic states, while the process had only started elsewhere.
The second is the type of austerity implemented. While all countries had a mix of tax increases and spending cuts, the Baltic states had more emphasis on spending cuts while Greece had a big emphasis on consumption tax increases that hurted the competitiveness of its vital tourist industry
(Excerpt) Read more at csmonitor.com ...
I’ll bite. How are increased taxes ‘austerity’?
NATIONS WITH HIGHER CREDIT RATINGS THAN THE USA:
GDP: $1.2 trillion
Debt: $276 billion, or 22 percent of GDP
GDP: $377 billion
Debt: $263 billion, or 70 percent of GDP
GDP: $1.6 trillion
Debt: $1.3 trillion, or 84 percent of GDP
GDP: $310 billion
Debt: $138 billion, or 44 percent of GDP
GDP: $239 billion
Debt: $116 billion, or 48 percent of GDP
GDP: $2.6 trillion
Debt: $2.2 trillion, or 84 percent of GDP
GDP: $3.3 trillion
Debt: $2.7 trillion, or 80 percent of GDP
8. Hong Kong
GDP: $225 billion
Debt: $11 billion, or 5 percent of GDP
GDP: $55 billion
Debt: $9 billion, or 17 percent of GDP
GDP: $783 billion
Debt: $499 billion, or 64 percent of GDP
GDP: $414 billion
Debt: $225 billion, or 54 percent of GDP
GDP: $223 billion
Debt: $216 billion, or 97 percent of GDP
GDP: $456 billion
Debt: $181 billion, or 40 percent of GDP
GDP: $524 billion
Debt: $288 billion, or 55 percent of GDP
15. United Kingdom
GDP: $2.2 trillion
Debt: $1.7 trillion, or 77 percent of GDP
Higher taxes = austerity for people who work.
Spending cuts = austerity for people who don’t work or “work” for the government.
Can you now see why some favor the first kind of austerity?
Well hey- life is pretty simple in my world. I have X amount of dollars and when that is gone I am done with wants as well as needs until my funding is replenished.
I vote for austerity.
Stealing less. No contest.
Estonia, cut back big time in 08 and 09 against the norm to get into the Euro, and it worked for them. They are growing now.
WOW only 2 choices? Cut spending or raise taxes?
Sick of these kinds of articles....
Yes we need to cut spending and yes we need more revenue and to do that:
We need jobs
To have jobs WE NEED EMPLOYERS
To have employers we need regulatory changes from the Federal, state and local levels
Increased taxes = more money for government to spend.
That is not austerity.
Tax increases are “austerity” because they force austerity on businesses and the tax-paying citizenry. (I think the idea is that spending cuts force “austerity” not so much on the government as on those businesses and citizens who have been the beneficiaries of government largesse.)
Of course the article seems to support the idea that forcing austerity on the government by spending cuts is more useful in spurring economic growth, as it puts the example of Estonia’s experience first.
Nine Signs That a New Global Recession Has Arrived
Posted: August 22, 2011 at 6:25 am
2. GDP Forecasts
3. Oil demand falls
4. Stock markets retreat
6. Civil War
7. The Poor
8. Government spending cuts
9. Wall St. turns against growth
Read more: Nine Signs That a New Global Recession Has Arrived - 24/7 Wall St. http://247wallst.com/2011/08/22/nine-signs-that-a-new-global-recession-has-arrived/#ixzz1VlnhhiWk
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