Monday, May 25, 2009

Higher Deficits Don't Help Much

A recent study of the National Bank of Slovakia (NBS) finds fiscal stimuli relatively ineffective.

"An increase of deficit by one percentage point of GDP permanently would increase GDP growth only in the short-term - by 0.4% in the first year, and 0.2% in the following periods. After six quarters, the GDP dynamic would return to its original level. The major effect of such permanent deficit increase would be lasting increase in real interest rates."

The paper by Michal Benčík can be found at the NBS's website (in Slovak).

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