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UK Mini Budget Delivers Minimal Boost (Schroders, 5 min read) Policy changes announced will not have a massive impact on job creation or demand; the chancellor will have to return later with more measures, according to Schroders. The announced job retention bonus scheme would incentivise firms to temporarily bring back staff to collect the bonus and let them go in January. A kick-start scheme for the youth also creates a similar incentive, and similar projects for the youth failed in France earlier.
Congress is a Month Away from Cutting the Economy’s Fiscal Life Support. (Notes on Crises, 8 min read) Nathan Tankus considers the expiration of US unemployment benefits to be catastrophic for the US economy. Prime-age worker unemployment remains elevated, permanent unemployment is rising, and that without Federal Pandemic Unemployment Compensation the fall in real income for lower-income households is substantial.
Fiscal Consolidations and Electoral Outcomes in Emerging Economies (JPE, 39 page read) Does the policy mix matter? Macro and micro level evidence from Latin America. This European Journal of Political Economy paper finds that fiscal consolidations are electorally costly in emerging markets. If governments do choose austerity measures, voters are shown to prefer expenditure cuts over tax increases during downturns, which is the opposite of the type of consolidations that countries typically pursue.
The Politics of Flat Taxes (RED, 32 page read) A paper published in the Review of Economic Dynamics looks at the preferred tax policy across the wealth and income distribution. The majority voting outcome features: (i) zero labour income taxation, (ii) simultaneous use of capital income and consumption taxation, and (iii) essentially zero transfers.
The Determinants of Fiscal and Monetary Policies During the COVID-19 Crisis (NBER, 19 page read) Countries around the world are grappling with their policy responses to the COVID crisis. The authors of this empirical study on 85 countries find that variations in the size of a country’s fiscal response depends on its income level and its credit rating. Higher-income countries have spent more and tended towards unconventional monetary policy. Lower-income countries with poor credit histories are, however, significantly limited in their ability to deploy fiscal policies.