More Proof that Government Spending Hurts the Economy

The Tax Foundation highlights a new NBER paper by Harvard economists, “Large Changes in Fiscal Policy: Taxes Versus Spending,” which analyzes the fiscal policies of OECD countries from 1970-2000.

The study confirms what we’ve been saying for years – increased government spending is less effective at accelerating economic growth than tax cuts. This contradicts the claims of left-leaning economists that claim spending is a better economic stimulus, and defending the Bush stimulus of 2008, the Obama stimulus, Rendell stimulus, or calling for another stimulus.

Even more crucial is the finding that, in trying to balance the budget in tough times, “adjustments on the spending side rather than on the tax side are less likely to create recessions.”

Heritage recently updated their chart on unemployment which clearly demonstrates the inability of spending increases to spur economic growth.

Unemployment Rate for October 2009