Proposed Spending Cap in Brazil Could Be a Key for Economic Recovery and Renaissance

One of the most remarkable developments in the world of fiscal policy is that even left-leaning international bureaucracies are beginning to embrace spending caps as the only effective and successful rule for fiscal policy.The International Monetary Fund is infamous because senior officialsrelentlessly advocate for tax hikes,but the professional economists at the organization have concluded in two separate studies (seehere andhere) that expenditure limits produce good results.Likewise, the political appointees at the Organization for Economic Cooperation and Developmentgenerally push a pro-tax increase agenda, but professional economists at the Paris-based bureaucracy also have produced studies (seehere andhere) showing that spending caps are the only approach that leads to good results.Heck, even the European Central Bank has jumped into the issue witha study that reaches the same conclusion.This doesn ’t mean balanced budget requirements are bad, by the way, but the evidence shows that they aren’t very effective since they allow lots of spending when the economy is expanding (and thus generating tax revenue). But when the economy goes into recession (causing a drop in tax revenue), politician s impose tax hikes in hopes of propping up their previous spending commitments.With a spending cap, by contrast, fiscal policy is very stable. Politicians know from one year to the next that they can increase spending by some modest amount. They don ’t like the fact that they can...

Source: Cato-at-liberty - October 13, 2016 Category: American Health Authors: Daniel J. Mitchell Source Type: blogs