Report | Budget Taxes and Public Investment

Fiscal Consolidation Should Wait Until Economic Recovery is on Track

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The economy remains fragile and well below potential. Major deficit reduction should not be implemented until the recovery is firmly on track, that is, until unemployment has dropped significantly and is on a downward trajectory. Main findings include:

  • The U.S. economy remains weak: unemployment is projected to remain elevated for several years.
  • Experts agree that deficit reduction should wait.
  • “6-for-6” trigger: unemployment should reach 6% and remain below that rate for 6 consecutive months, before any fiscal contraction should be implemented.
  • Near-term investment is essential.
  • Targeted job creation will remain necessary even after the trigger is reached.

Deficit reduction and short-term job creation are not competing priorities. Job creation is needed today to ensure a strong economy and a solid tax base tomorrow: you can’t reach reasonable budget targets without a strong and rapid recovery, and you won’t get a strong recovery if you pursue austerity too early.

Setting an appropriate trigger for fiscal consolidation would help to ensure that the recovery is not stunted by an inappropriate change in fiscal policy.


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