Economics, Econometrics and Finance
4 years ago

Cutting education spending hurts economy more than reducing public investment

Economic Analysis
Dynamic applied general equilibrium analysis for fiscal reconstruction based on a multi-sector overlapping generations model (in Japanese)
Shin Kimura, Kyoji Hashimoto

Paper Summary

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The study used a model to analyze how different ways of cutting government spending in Japan can affect the economy. They found that increasing consumption taxes can temporarily boost GDP, but it actually leads to a decrease in national income. Cutting education and other government spending has a bigger negative impact on GDP than reducing public investment. In the long term, reducing public investment and education spending can increase GDP, while cutting other government spending leads to lower GDP.