Abstract -- Economic Effects of Fiscal Contraction -- Does it Make a Difference to GNP Growth How the Deficit is Reduced? -- Monetary Expansion as an Offset to Fiscal Contraction -- The Simulations. The DRI Control Case ; Expenditure Cuts vs. Tax Hikes ; Expansive Monetary Policy ; Fiscal Contraction and Monetary Expansion -- Conclusion -- Appendix. Table 5 - Expenditure Cuts versus Tax Hike ; Table 6 - The Effects of a 3-Quarter Monetary Acceleration ; Table 7 - Expenditure Reductions and Monetary Expansion.
This report examines the potential macroeconomic effects of meeting the Gramm-Rudman-Hollings deficit targets. Both expenditure cuts and tax increases are considered, as is the potential for monetary policy to offset contractionary fiscal policy. It concludes that, because of time lags, an economic slowdown may be unavoidable.
Gail Makinen, Specialist in Economic Policy and Brian Cashell, Analyst in Quantitative Economics
CRS 86-1036 E
"December 16, 1986."
SuDoc # LC 14. 18/3
