Alberto Alesina writes in today’s Wall Street Journal that cutting taxes rather than more government spending is the way to go if the wish truly is to restore vigor to the economy. Here are his concluding paragraphs:
Europe seems to have learned the lessons of the past decades: In fact, all the countries currently adjusting their fiscal policy are focusing on spending cuts, not tax hikes. Yet fiscal policy in the U.S. will sooner or later imply higher taxes if spending is not soon reduced.
The evidence from the last 40 years suggests that spending increases meant to stimulate the economy and tax increases meant to reduce deficits are unlikely to achieve their goals. The opposite combination might.
The Economist points the way for new directions in public-choice analysis. (But Geoff Brennan and Loren Lomasky, as well as my brilliant young colleage Bryan Caplan, are the intellectual heavyweights here.)
Steve Landsburg makes an important – and typically missed – point about capital-gains taxation. My dear, late friend Hugh Macaulay never tired of pressing this same point, and was always frustrated that even many economists overlooked it.