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By J. O. N. Perkins (auth.)

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Extra resources for A General Approach to Macroeconomic Policy

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The measure in question is thus on this measure more 'inflationary' than any of the others. NoTE: The figures in italics show the least inflationary form of stimulus (on each of these two statistical measurements) for each country. SOURCE: Data for rise in government outlays and cut in interest rates derived from Richardson, 1987 and 1988; results for income tax cuts derived from data supplied by Pete Richardson. those other two instruments. But, for Canada, as for the others, an income tax cut is on these results less inflationary than a rise in government outlays.

2 Two fiscal instruments with different relative effects on two objectives Effect on Output Prices Tax cuts Government outlays +1 +1 +1 +2 to the policy decisions. ) In this case it is obvious that if one wants to exert downward pressure on prices while raising output, government outlays should be reduced and taxes cut to an appropriate extent until the two objectives are achieved; for in this case a cut in government outlays would not have any (unwanted) downward effect on output. (ii) Even if each instrument has some effect on both objectives, the desired result can be achieved by appropriate adjustments of both of them, provided only that their respective (upward) effects on prices are not the same for a given upward effect on output.

4) is consistent with the ranking in the OECD results. 5). Only one of them, that for the rise in government outlays, is therefore broadly comparable to one of those reported above as being undertaken with the UK econometric models; and only those for (bond-financed) income tax cuts and those for rises in government outlays are directly comparable to simulations by the OECD. They are, however, interesting and helpful as broadly confirming most of the evidence for the UK (discussed above) relating to the ranking of different types of tax cut (even though the EEC simulations assume the cuts are bond financed, whereas the UK simulations assumed that they were accommodated).

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