Tuesday, May 18, 2010

Fiscal Policy: Arizona Governor May Have a Point

While I think Jan Brewer – Arizona’s governor – should be made to pay for signing into law SB1070, the horrific immigration law, her support of
Proposition 100
is commendable. Fiscal restraint during weak aggregate demand is generally bad economics but state governments often are forced into such measures by their requirements to annually balance their budget. If the choice is between reducing government purchases versus a temporary tax increase, then on Keynesian grounds the latter is the least undesirable move as it likely has less of an impact effect on aggregate demand. Then again – state governments would not be faced with such Draconian choices had we decided to increase Federal revenue sharing by more than what barely got through the Senate.

4 comments:

JW Mason said...

You mean temporary tax increase, not cut.

ProGrowthLiberal said...

JW - thanks. Post corrected. I am so used to Republicans proposing tax cuts, I guess my fingers refused to write tax increase in reference to a Republican idea.

Anonymous said...

Why exactly should she be made to pay for here signing into the bill. When immigrants come here to find no work they will turn to the streets, thus increasing crime and costs to imprison these people.

Min said...

"If the choice is between reducing government purchases versus a temporary tax increase, then on Keynesian grounds the latter is the least undesirable move as it likely has less of an impact effect on aggregate demand."

Yes, but a sales tax will put some drag on aggregate demand. Better an increase in property taxes, no?

Besides, it is unlikely to be temporary. Temporary tax changes have a way of sticking around.