“A number of studies suggest that fiscal contraction associated primarily with declines in spending is accompanied by an expansion of the economy in the short term, whereas adjustments based primarily on revenue increases feature output contractions.” Page 9.
“Spending-based adjustments are less contractionary
than tax-based adjustments. In the case of
tax-based programs, the effect of a fiscal consolidation of 1 percent of GDP on GDP is –1.3
percent after two years (Figure 3.5). In the case
of spending-based programs, the effect is –0.3
percent after two years, and is not statistically
significant.24 Similarly, while deficit cuts that
rely on tax hikes raise the unemployment rate
by about 0.6 percentage point, spending-based
deficit cuts raise the unemployment rate only
by about 0.2 percentage point (see Figure 3.5).”
Pages 10 and 11.
.
