Does this mean the stimulus package's $287 billion in tax cuts was a waste of time?
Tax cuts may heighten deflation risks - NY Fed study(Reuters) - Cutting taxes to try to stimulate the economy could do more harm than good in a zero interest rate environment as it can heighten the risk of deflation, according to a recent New York Federal Reserve study.
Policies that are aimed at increasing the supply of goods can be counterproductive when the main problem is insufficient demand, New York Fed economist Gauti Eggertsson said in a research paper entitled "Can tax cuts deepen the recession?"
"The emphasis should be on policies that stimulate spending," Eggertsson said, adding that his research found the impact of tax cuts is "fundamentally different" with interest rates near zero.
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