Montreal, March 21, 2016 – In the run-up to the first Morneau budget, expected to include a much larger deficit than the $10 billion announced during the election campaign, the MEI urges the federal government to take action to get public spending under control.
As two recent MEI publications clearly show, increasing budget deficits in order to boost the economy, which certain economists and lobby groups have been advising the federal government to do, is a policy that is doomed to fail.
“The experiences of European countries in recent years have shown that those that choose to reduce both their public spending and their revenues achieve higher annual economic growth than those that do the opposite,” says Mathieu Bédard, Economist at the MEI. “Studies also show that the only effect of increasing public spending is to create jobs in the public sector, but no sustainable employment in the private sector.”
“These empirical results directly contradict the doctrine of economists promoting deficits as tools of economic recovery,” adds Michel Kelly-Gagnon, President and CEO of the MEI. “And at any rate, we have to keep in mind this important fact: Canada is not in a recession, and according to the Bank of Canada’s latest forecasts, it will not be in one in 2016 either,” he emphasizes.
The best way to stimulate the economy is to remove obstacles for entrepreneurs and innovators by reducing taxes and the regulatory burden, he adds. “Increasing government spending will just pull resources out of the private sector, which is the last thing the Canadian economy needs.”
The Viewpoint entitled “The Federal Government’s Deficits Will Not Stimulate the Canadian Economy” was prepared by Mathieu Bédard, Economist at the MEI, and is available on our website.
The Economic Note entitled “Cutting Public Spending Promotes Economic Growth” was prepared by Mathieu Bédard, Economist at the MEI, in collaboration with Vincent Geloso and Youcef Msaid, and is available on our website.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
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