There are two alternative paths to long-term fiscal balance in LDC’s, if MDGs and other long term economic goals are to be feasible.
The less desirable path is austerity economics: government sharply cuts spending long before full employment is reached; production stagnates; revenues decline. We might reach budget balance but at a lower level of economic output, with increased taxes on working Kenyans and reduced public services.
The alternative high road path would increase public spending financed by deficits for a year or two, until unemployment is definitely on a downward trend and GDP is rising rapidly. We then collect more revenues from a stronger economy. By identifying investments vital to our future, and paying for them with targeted spending cuts and progressive tax reforms, our country provides the basis for new private-sector investments that help fuel growth, generating greater revenues while reducing the deficit. The benefit of this second path is that government moves towards a reduction in annual deficits and a lowering of the debt-to-GDP ratio, at a higher level of economic output, while building a new basis for long term prosperity.
The less desirable path is austerity economics: government sharply cuts spending long before full employment is reached; production stagnates; revenues decline. We might reach budget balance but at a lower level of economic output, with increased taxes on working Kenyans and reduced public services.
The alternative high road path would increase public spending financed by deficits for a year or two, until unemployment is definitely on a downward trend and GDP is rising rapidly. We then collect more revenues from a stronger economy. By identifying investments vital to our future, and paying for them with targeted spending cuts and progressive tax reforms, our country provides the basis for new private-sector investments that help fuel growth, generating greater revenues while reducing the deficit. The benefit of this second path is that government moves towards a reduction in annual deficits and a lowering of the debt-to-GDP ratio, at a higher level of economic output, while building a new basis for long term prosperity.
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