Category Fiscal policy
Canada, the Eurozone, and interest rates
This is something I know I don't understand. Compare the following two statements: A: "Some Eurozone countries have higher interest rates on their government bonds, reflecting higher perceived risk of default. This raises all interest rates in those countries, and so reduces aggregate demand in those countries." B: "Some Canadian provinces have higher interest rates […]
An updated history of the federal budget balance
I did a round of interviews for CBC radio on Tuesday after the federal government's fiscal update was released, and it was often remarked that the 2009-10 deficit of $55.6b was the largest ever. I suppose I should have said that it sounds even larger if you say it was 5.56 trillion cents. These numbers […]
“Canada’s Budget Triumph” – some additional context for the US
David Henderson* of GMU has a working paper (h/t Tyler Cowen) on the story of how Canada's federal government solved its budget balance woes during the latter half of the 1990's, with almost no apparent ill effects. Much of the paper sets out the political context that made this possible, and is very useful in […]
The paradox of thrift vs the paradox of hoarding
Would a sudden fad for antique furniture cause a recession? If, like Paul Krugman, you believe in the paradox of thrift, and if you follow the remorseless logic of your mistaken model, you should answer "yes". I don't believe in the paradox of thrift, and would answer "no". There is no paradox of thrift. There […]
Is the stimulus program already being phased out?
The federal government won't be bringing its 2011-12 budget down until at least four months from now, but there's already some discussion about just when its fiscal stimulus should be phased out. The government's current line is that the infrastructure program will end on March 31 as planned, with perhaps a certain amount of wiggle […]
Time-shifting planned demand vs. permanently increasing actual demand
Most policies aimed at increasing demand merely time-shift planned demand. Does that mean they don't really work? Does it mean we get recovery now at the expense of an even bigger recession later? Do we just have to cross our fingers and hope that something else eventually comes along to increase demand in future? A […]
Federal Taxation of Labour Income in Canada is Regressive (in Terms of Marginal Rates)
Or at least, it is for some ranges of income. Don't believe me that marginal tax rates are regressive? Follow me:
On Canada’s exit strategy
In my previous post, I noted that the Canadian economy was moving towards the end of the recovery phase of the recent recession. But what exactly does that mean in terms of a shift in the government's policy stance? And just when should that shift take place?
The federal deficit bottoms out
The most recent numbers from the Fiscal Monitor confirm that the deficit has started to shrink. These data are monthly and have important seasonal factors (particularly at the end of the fiscal year), so I've been tracking the 12-month moving sums. These don't quite correspond to the annual numbers, but they give us a good […]
The effect of expected future taxes on current investment: how big?
If the government runs a fiscal deficit now, that may mean that future taxes increase. The expectation of those future taxes may reduce the expected after-tax marginal return to current investment. That may reduce current investment, and may offset some of the effects of the fiscal deficit on aggregate demand. This mechanism for crowding out […]
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