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Does Fiscal Consolidation Raise Inequality?

Fiscal tightening, whether based on cutting spending or raising taxes, has raised inequality and lowered the wage share of income. These are the main findings of my co-authored IMF working paper released today. The results are based on 173 episodes of fiscal consolidation during 1978-2009 for 17 OECD economies (Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Netherlands, Portugal, Spain, Sweden, the United Kingdom, and the United States). Some of the key charts from the paper are given below.

Fiscal consolidation raises inequality (as measured by the Gini Coefficient)
(The horizontal axis shows the year of the consolidation—year 0—and the impact up to 8 years after the consolidation)



Consolidation based on spending cuts raises inequality …



… as does consolidation based on tax increases



Fiscal consolidation lowers the wage share of income


Fiscal tightening, whether based on cutting spending or raising taxes, has raised inequality and lowered the wage share of income. These are the main findings of my co-authored IMF working paper released today. The results are based on 173 episodes of fiscal consolidation during 1978-2009 for 17 OECD economies (Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Ireland, Italy, Japan, Netherlands, Portugal, Spain, Sweden, the United Kingdom, and the United States). Some of the key charts from the paper are given below.

Read the full article…

Posted by at 7:07 PM

Labels: Unemployment

House Prices in Ireland

“House prices slipped back reflecting developments outside Dublin. After stabilizing over much of 2012, national residential property prices fell 2.6 percent in the first quarter of 2013, bringing the index to a new low 51 percent below its pre-crisis peak,” according a new IMF report on Ireland. What explains the drop in prices? The report says that “this decline was driven by an almost 4 percent price fall outside Dublin, reflecting divergent market conditions—the stock of property available for sale in Dublin amounts to around 6 months‘ supply, but regional markets face inventories ranging from 20–60 months. Nonetheless, property transaction volumes rose by 14 percent y/y in Q1 2013, and with rents and disposable incomes rising, housing affordability and implied rental yields appear positive by historical standards.”

“House prices slipped back reflecting developments outside Dublin. After stabilizing over much of 2012, national residential property prices fell 2.6 percent in the first quarter of 2013, bringing the index to a new low 51 percent below its pre-crisis peak,” according a new IMF report on Ireland. What explains the drop in prices? The report says that “this decline was driven by an almost 4 percent price fall outside Dublin, reflecting divergent market conditions—the stock of property available for sale in Dublin amounts to around 6 months‘ supply, Read the full article…

Posted by at 4:49 PM

Labels: Housing

MAULDIN: Economists Are Totally Clueless About The Economy

From Business Insider:

“In November of 2008, as stock markets crashed around the world, the Queen of England visited the London School of Economics to open the New Academic Building. While she was there, she listened in on academic lectures. The Queen, who studiously avoids controversy and almost never lets people know what she’s actually thinking, finally asked a simple question about the financial crisis: “How come nobody could foresee it?” No one could answer her.”

“If you’ve suspected all along that economists are useless at the job of forecasting, you would be right. Dozens of studies show that economists are completely incapable of forecasting recessions. But forget forecasting. What’s worse is that they fail miserably even at understanding where the economy is today. In one of the broadest studies of whether economists can predict recessions and financial crises, Prakash Loungani of the International Monetary Fund wrote very starkly, “The record of failure to predict recessions is virtually unblemished.” He found this to be true not only for official organizations like the IMF, the World Bank, and government agencies but for private forecasters as well. They’re all terrible. Loungani concluded that the “inability to predict recessions is a ubiquitous feature of growth forecasts.” Most economists were not even able to recognize recessions once they had already started.” Read the full article here.

From Business Insider:

“In November of 2008, as stock markets crashed around the world, the Queen of England visited the London School of Economics to open the New Academic Building. While she was there, she listened in on academic lectures. The Queen, who studiously avoids controversy and almost never lets people know what she’s actually thinking, finally asked a simple question about the financial crisis: “How come nobody could foresee it?”

Read the full article…

Posted by at 6:43 PM

Labels: Economic Forecast

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