One Estimate of Multipliers
By Arnold Kling
Our results suggest that tax cuts are more expansionary than spending increases in the cases of a fiscal stimulus. Based upon these correlations we would argue that the current stimulus package in the US is too much tilted in the direction of spending rather than tax cuts. For fiscal adjustments we show that spending cuts are much more effective than tax increases in stabilizing the debt and avoiding economic downturns. In fact, we uncover several episodes in which spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions.
If you want to grow the economy, cut taxes. If you want to balance the budget, cut spending.
Of course, it is my view that this sort of econometrics changes no one’s mind (if the results had gone the other way, I doubt that I would have changed my mind). If somebody on the Left embraces the results, I’ll have to eat my words.