IMF Study: Cut Government Budgets With Care

Posted September 13th, 2011 at 3:25 pm (UTC-5)
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A newly-published study by International Monetary Fund experts says governments need to be careful how quickly they cut spending or they could hurt the economic recovery.

The study's authors looked at austerity programs in 17 nations over three decades. They came to the conclusion that cutting government spending by the equivalent of one percent of a nation's gross domestic product hurts growth and incomes, and raises unemployment.

The IMF report says fiscal consolidation also increases the number of people enduring long-term unemployment.

The report follows sharp spending cuts in Britain and proposals for major spending cuts in the United States.

Supporters of spending cuts say reducing government costs frees up resources for the private sector to use, and reduces the interest costs of repaying government debt.

The recent recession made budget deficits worse, by raising government costs for unemployment compensation and cutting revenue from taxes.