If the government tightens its purse in 2010, will the recovery be aborted? En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
Now notice two things about that chart. We don't have a whole cycle to play with and in fact it appears we don't even have the previous peak which must have happened in 2006, but anyway...
It looks like the recession is deeper and shorter than the growth phase. This is possibly because the counter-cyclical public deficit (whether "automatic stabilizers" or "emergency stimulus") kicks in and brakes the contraction whereas the growth phase is allowed to run its course.
Another feature is that swing in the rate of change of GDP is in excess of 8% (from > 4% to -4.2%) and this with a countercyclical deficit of 10% of GDP for 2009. So...
It may be that the 3% public debt limit in the Stability and Growth Pact is too tight. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
It may be that the 3% public debt limit in the Stability and Growth Pact is too tight.
I don't see why. It's a useful number to instill some budgetary discipline in normal to poor years, and by and large it has worked. It's no a constraint in severe recessions, as current numbers show. It's a good medium target to have to return to "normal."
The number was selected as that which makes debt remain constant at 60% of GDP at "normal" growth rates, which is not an absurd goal on its face. In the long run, we're all dead. John Maynard Keynes
So, if the deficit limit is 3% what is the guideline yearly budget surplus governments should be running? 5%? A 3% debt limit assumes the GDP rate swing will be something of the order of 4% and is a consequence of bullshit "great moderation" "we tamed the business cycle" "small government" neoliberal bullshit.
It makes a whole lot more sense to have an over-the-cycle guideline and to force states to run budget surpluses in the growth years instead off saying that a 1% deficit when GDP is growing at 4% is A-OK just because the deficit is less than 3% and the debt less than 60%. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
The number was selected as that which makes debt remain constant at 60% of GDP at "normal" growth rates
Also, please remember to mention whether one needs to assume that "the recession is an outlier" in the definition of "'normal' growth rates".
What size of the government revenue as a fraction of GDP is assumed for the calculation?
How long and deep is the business cycle assumed to be in the calculation? En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
Also, the 3% was also supposed to be a maximum allowed deficit, not a guideline value during normal growth. En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma
