In a message dated 8/20/02 7:58:33 AM, [EMAIL PROTECTED] writes:
<< --- [EMAIL PROTECTED] wrote: > In a very simplistic macro view, raising public expenditures or lowering > taxes (in the short run) were both considered "expansionist" fiscal > policies--at least in the sense that both increase public sector > deficits... they are equivalent policies. <<The expansionist effect is reduced when the deficit is financed from domestic borrowing, which displaces private domestic consumption or investment.>> Agreed. And if financed by creating new money, it simply increases nominal aggregate demand, but not real aggregate demand (does anyone in econ still talk about the old concept of aggregate supply and demand?), creating a false expansion--inflation--followed by a bust. That policy characterizes the "stagflation" circa 1968-1982. > However, in real world policymaking, republicans prefer lower taxes and > democrats would rather have more expenditures... as if they were different > policies. > > Does this partisan/ideological asymmetry have any real effect? <<As such, no. But there are also supply-side effects from reducing taxes, which would provide a larger effect, and the long-run domestic effect depends on what the funds are spent for, i.e. military abroad versus domestic consumption or governmental investment.>> If the tax reduction comes in the form of reducing marginal tax rates we'd get a supply-side increase in the rate of growth, but tax rebates a la Ford or Junior Bush simply shift the income back to the private section (where it may increase growth simply through an efficiency effect, which you'd also get with cuts in marginal tax rates). > More practically, what is easier to get, lower taxes or higher > expenditures? <<Higher expenditures are easier, since tax cuts require lengthy deliberations and are more difficult to reverse. Spending can be focused on local "pork."> Likewise "targeted tax credits" and other narrowly-focuses tax breaks. It's much hard to do what Reagan did--making sweeping across-the-board cuts in marginal individual income tax rates. > Does this apply to the federal as well to the state level? I don't see why not. Fred Foldvary >> Agreed. David Levenstam
