Andrew Lilico of Policy Exchange (plus many other areas, such as the Shadow MPC), has come up with an interesting compromise for those Centre-Right thinkers who are both annoyed by the high level of public spending, and worried about the macroeconomic consequences of cutting the deficit. Why not do a temporary tax cut at the same time?
A lot of precedent overseas suggests that it is easier, politically, to cut soon. But Keynesian macroeconomics argues against it. Does this square the circle?
I would be interested to know which tax cuts will have the same bang-for-buck as spending, but they do at least have less distortionary effects, particularly if well-targeted on high marginal spenders. Perhaps lift the income tax threshold?
Posted by Matthew on February 24, 2010 at 6:30 pm
Excuse me, this is my idea! I want royalties
http://www.matthewturner.co.uk/Blog/2010/02/tories-and-deficit.html
Posted by Tim Worstall on February 26, 2010 at 4:22 pm
Temporary cut in NI contributions.
Worth having as an automatic stabilser actually. Hey, we’re in a recession, great, cut NI rates. Fast, simple, money flows into pay packets within a month (for some a week).
Vastly faster than any spending changes……
Posted by freethinkingeconomist on February 26, 2010 at 5:25 pm
And Martin Wolf today seems to agree with the broad thrust. (last para but 2)
Met someone today who has met R Murphy. Makes your views seem mild.
Posted by Martin Wolf makes me envious here « Freethinking Economist on February 26, 2010 at 5:44 pm
[...] number of credit weaknesses in the economy and directing reserves in those directions. As I said earlier, coming out with tax cuts and spending cuts at the same time is an interesting idea, and now [...]