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In the short-run, we are all dead

Prime Minister Monti recognized (it is the first time we hear this in the political debate, this is a good start) that no positive short-term impact on growth can come from reforms. These affect the economy over a long-term horizon and, I add, might even have a negative impact at the beginning.

Markets fear lack of growth in the short-run because growth in the short-run is the best ally for sustaining difficult long-term reforms in the Parliament and in the country.

Prof. Monti argues in favor of a recomposition of taxes away from labor and toward consumption, but seems to keep intact the aim of a balanced budget for 2013. No keynesian multiplier of income seems to be triggered. If that is the case, short-run useful growth may not appear and long-term reforms may end up lacking credibility.

So what do we do? We may even raise consumption taxes again, but please use that money for a sound expansion of public demand of goods, services and works. No mention is made, I add, of financing those with cuts in waste too. But let’s wait and see; the mere understanding that there is a short-run problem with growth if we only rely on reforms is a good beginning. We might see the light at the end of the tunnel if we push further our beliefs by voicing them: expand public expenditure through good procurement NOW, Prof. Monti.

2 comments

  1. I agreed on dicharging taxes from the labour, in this way we allow the undertakings to breath and to become more competitive on the markets.
    I want ask you, maybe is a stupid question, but what do you think about taxing consumption during a recession period? Could it lead to a further economic depression?

    Reply
    • Taxing consumption is a good way of helping savings. Structurally we should shift to taxing consumption away from income, in a progressive way though. In this slump? Fine with me, what matters is what you do with it. You need to spend it through higher public expenditiure!

      Reply

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