IMF research on “fiscal profligacy” criticised

13 February 2013

As the US completed its ‘fiscal cliff’ deal, a January IMF working paper by Paolo Mauro, Rafael Romeu, Ariel Binder and Asad Zaman, has accused the US of 10 instances of “fiscal profligacy” over the last 100 years. The paper, rating countries’ public debt sustainability, places the US in the “profligate” club along with Japan, Israel, Costa Rica and Honduras, based on poor “overall fiscal deficit” management. Yet although political attention has focused on deficit-reduction in the US, the low-tax economy and job cuts are also creating “wealth inequity” and “wage stagnation” according to Richard Eskow of think tank, the Campaign for America’s Future. Eskow criticised the IMF’s “poorly-chosen label” of profligacy, saying it “demonstrates that their grasp of language rivals their grasp of economics.” Showing in his blog that the US has one of the lowest levels of government expenditure as a share of GDP among rich countries, Eskow said the real issue in the US is raising taxes: “we’re fixated on spending, and the revenue side of the discussion has been narrowed so radically that the only debate going on in Washington is over which six-figure incomes will be taxed at a historically low rate of 39.5 per cent.”