Mankiw on Tax Cuts or Spending

http://www.futureofcapitalism.com/2010/06/mankiw-on-tax-cuts-or-spending

Also in the Summer issue of National Affairs, Harvard economist Gregory Mankiw has an article about whether fiscal stimulus is best delivered as tax cuts or as government spending:

Perhaps the most compelling research on this subject is a very recent study by my colleagues Alberto Alesina and Silvia Ardagna at Harvard. They used data from the Organization for Economic Cooperation and Development to identify every major fiscal stimulus adopted by the 30 OECD countries between 1970 and 2007. Alesina and Ardagna then separated those plans that were in fact followed by robust economic growth from those that were not, and compared their characteristics. They found that the stimulus packages that appeared to be successful had cut business and income taxes, while those that evidently did not succeed had increased government spending and transfer payments.

The data in the Alesina-Ardagna study are mostly European; only a small portion comes from the United States. But the evidence leads to conclusions that are very similar to those from Mountford and Uhlig's work using American data. These conclusions are also consistent with the work of Ramey and the Romers, which looked at the historical record to identify multipliers. There appears to be a growing body of evidence, then, suggesting that taxes may be a better tool for fiscal stimulus than conventional models have indicated.

by Ira Stoll  |  Jun 28, 2010 at 9:48 am Related Topics:  Education, Europe, Non-Profits, Press, Stimulus, Taxes receive the latest by email: subscribe to the free futureofcapitalism.com mailing list