IMF Proof That Spending Cuts Work Better Than Tax Increases

IMF Proof That Spending Cuts Work Better Than Tax Increases

Harvard economist Alberto Alesina cites an IMF analysis with empirical data that spending cuts are better for the economy than tax increases.  Refer to link way below at bottom.  Quick summary and comments below:


Alesina supports great point that private investment often increases after government spending cuts. This makes sense as business confidence increases after cuts.  A worse policy is increasing taxes thinking this will decrease debt. Rather it increases debt because the economy slows resulting in less revenue to the Treasury. Therefore we warn Boehner – do not cave in to tax rate increases.


In 2011, the International Monetary Fund  (IMF) identified episodes from 1980 to 2005 in which 17 developed countries had aggressively reduced deficits. Each episode was classified as either “expenditure-based” or “tax-based,” depending on whether the government had mainly cut spending or hiked taxes.

Results: Cutting spending resulted in very small, short-lived — if any — recessions, and raising taxes resulted in prolonged recessions.


*** It is very encouraging and extremely significant to learn of The IMF conclusion.  Why?  Because when the Day of Reckoning comes to the US (exploding debt leading to dollar collapse and forced debt  and budget restructuring), the IMF will play a major role.  This may then lead to a dismantling of the Nanny State, thus then allowing US capitalism to regroup and lead the world again to new heights in prosperity.

Contrast this to a scenario where at the Day of Reckoning, Obama consults with his Leftist Globalists such as George Soros that the time is now to expand government control over much more of the economy.  This would then implement what may be Obama’s ultimate goal – an Alinsky variant Marxism in the US.  The IMF may prevent this.

Aftershock Economy

Except for my comments about Marxism, this (collapse, great pain, then new prosperity ) is in line with economic  expectations that Robert Wiedemer precisely details in this 3 Aftershock Economy books.  Reference —


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About economics501

1 - free market Capitalist; 2 - Fitness Entrepreneur; 56 years old, VP at an Investment Bank in NYC, ex Venture Capitalist, happily married with 2 girls. Education: Rutgers and NYU. I allow Ted Hruzd, my friend to blog at will here. He has many posts here. I have known Ted since we were both students at NYU. Ted also works for an Investment Bank as a VP in Equity Global Markets. ------------------------- I was very very Socialist leaning as a 22 year old. I then strongly believed in Gov role in helping the poor. However, as a USDA Child Nutrition Programs, I personally accounted for millions of fraud, abuse, and waste of tax payer money. I came to believe that the poor would be best served with less Gov programs and more with direct aid via tax system. Then after 5 years I became a free market capitalist, was a venture capitalist in 2007 and helped start 2 high tech companies. I dedicate this site to champion free market capitalism as the best road to Prosperity. Please join in. If you disagree, fine, but please post with dignity and class and be civil. Argue with facts always.
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2 Responses to IMF Proof That Spending Cuts Work Better Than Tax Increases

  1. wbwise says:

    Interesting point – did the study take into consideration the timing of government actions as spending cuts at the beginning of a recessionary cycle seem to have the opposite impact to the one noted in this opinion piece.

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