Abandon fiscal stimulus for ‘automatic stabilizers’ in times of downturn: study

Posted on July 26, 2013 in Policy Context

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NationalPost.com – FP/news/economy
13/07/25.   Gordon Isfeld

Fiscal stimulus policies during times of economic downturn are not the best means of limiting job losses on a national basis, The School of Public Policy at the University of Calgary said in a study Thursday.

Instead of policies such as Canada’s Economic Action Plan, which attempt to predict how much and where spending and tax relief will be provided, governments should put in place so-called “automatic stabilizers.” These include pre-set mechanisms for employment insurance, social assistance and tax adjustments.

“A nationally applied policy response will be appropriate for some regions of the country but inappropriate for others. It will be too weak a response in some areas, while being too strong in others, and it will be applied too late in some regions and too soon in others,” the study says.

“Before the next recession comes, the federal government — and provincial governments as well — would be wiser to prepare by investing resources in legislating well-designed automatic stabilizers so these processes are in place to naturally kick in precisely where and when they are needed.”

The impact of recessions differ depending on each region’s industrial make-up, says the study, which looked at the timing and depth of employment declines across the country since 1976.

“With the right formula of automatic stabilizers responding quickly and precisely to economic contractions, the main job left for politicians would be persuading the public that resorting to action plans and national strategies is something we are better off avoiding.”

< http://business.financialpost.com/2013/07/25/abandon-fiscal-stimulus-for-automatic-stabilizers-in-times-of-downturn-study/ >

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