Study: government spending better for economic growth than tax cut

Economist Dean Baker (Co-Director of the Center for Economic and Policy Research) has run the numbers on the relative payoff of two economic stimulus proposals: increased government spending, or a cut in taxes.

The result? $100 billion of additional government spending will lead to 1 million additional jobs, while a temporary cut in payroll taxes will generate 860,000 jobs. By contrast, a $100 billion cut in corporate taxes will lead to just 200,000 new jobs.

The paper also projects that a $100 billion increase in spending will cause the overall unemployment rate to drop by 0.5 percentage points. A reduction in the payroll tax of the same size will lead to a 0.4 percentage point drop in the unemployment rate, while the same cut in corporate taxes will cause the unemployment rate to fall by just 0.1 percent.

See the full brief here – 2 pages, an easy read.

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Posted in An Inclusive Economy, Progressive Tax Reform

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