Friday, January 21, 2011

Here's an idea, cut spending...reduce debt

Dan Mitchell has spotted the extraodinary idea that even the European Central Bank gets it,
I’m not a big fan of central banks, and I definitely don’t like multilateral bureaucracies, so I almost feel guilty about publicizing two recent studies published by the European Central Bank. But when such an institution puts out research that unambiguously makes the case for smaller government, it’s time to sit up and take notice.
He highlights the key points, specifically this one,
…this paper estimates several specifications of a logistic probability model to assess which factors determine the probability of a major debt reduction in the EU-15 during the period 1985-2009. Our results are three-fold. First, major debt reductions are mainly driven by decisive and lasting (rather than timid and short-lived) fiscal consolidation efforts focused on reducing government expenditure, in particular, cuts in social benefits and public wages. Revenue-based consolidations seem to have a tendency to be less successful. Second, robust real GDP growth also increases the likelihood of a major debt reduction because it helps countries to “grow their way out” of indebtedness. Here, the literature also points to a positive feedback effect with decisive expenditure-based fiscal consolidation because this type of consolidation appears to foster growth, in particular in times of severe fiscal imbalances.
Cutting spending results in reducred debt, raising taxes is nowhere near as effective.

Got that Dave and your 50% tax rates? Stop buggering peopole around, let them keep their own money, stop splashing their money about the place and the deficit will slowly sort itself out.

1 comment:

Jurnan said...

In many countries increasing taxes or having higher taxes for higher incomes is also a way of diminishing income disparities, not just a way to reduce the deficit.

Obviously cutting is a much more efficient way to reduce the deficit or debt, as tax increases equalling the UK government's cuts would be economical suicide.

To be fair, 50 (or 52 like in my country) is a percentage too high. I'm not sure where I'd be on the political left/right spectrum - mostly because it's a ridiculous label - but taking half or more than half of every extra Pound (or Euro) you make seems like government led theft.

I do think those that earn more should contribute more as well. The added value with extra earned money for a millionaire is hardly comparable to someone living on a small budget, but I don't know how you look at these matters.