For years, the data have turned the old, creaking Keynesian consensus upside down: government spending has been found to be less beneficial to the economy (and thus, cuts less damaging) than previously theorized, and tax increases more damaging.
This week, Professors Luca Agnello, Vitor Castro, and Ricardo Sousa add further evidence that raising taxes is not the way to go (Telegraph):
The study of austerity programmes in 17 countries between 1978 and 2009 found:
•?Reducing public spending lowered deficits more than raising taxes
•?Trading nations are usually more successful at restoring their public finances
•?Low interest rates and “sound macro-economic” conditions improve the odds of financial consolidations
•?Spending cuts are typically deepest in the second and third years of austerity programmes before rising again in the final years
In other words, cut deep and cut sharp, but don’t cut for too long. Consider it the economic equivalent of “rip the band-aid off.”
Raising taxes, meanwhile, “seldom brought in as much revenue for the Government as expected because they changed behaviour, depressed economic activity and encouraged avoidance schemes,” in the wise words of British Tory MP David Davis.
I know many – most likely a majority now – consider opposition to tax increases to be “ideological” and “extreme.” However, those of us who question tax hikes do so because we have seen what they do (and what they don’t) and are determined not to have it happen again.
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