Tax reliefs and aid packages for struggling industries such as the automotive sector are likely to only deplete state resources while not contributing at all to stimulating the global economy, warns the International Monetary Fund (IMF), as reported by London’s The Financial Times.
In a study published on Monday, the IMF claims that tax relief and consumption stimulus programs aimed at addressing the global economic recession being implemented by governments around the world must be comprehensive but also carefully designed."There are many more arguments in favor of the claim that it is better to do too much than too little," said Olivier Blanchard, the IMF’s chief economist.
He warns, however, that tax reliefs must be directed towards citizens who are more likely to spend money rather than save it. Tax reliefs must be concentrated on individuals who are facing difficulties in obtaining credit, and not on those who are more inclined to save than to spend, he said. In this regard, the IMF considers the economic stimulus plan of newly elected U.S. President Barack Obama to be appropriate. "The scope of that plan roughly corresponds to what we consider necessary."
The IMF further warned of the danger that directing aid to high-profile sectors such as the automotive industry could be perceived as unfair and could fuel protectionism. The Fund, whose economists were among the first in official circles to predict the duration and depth of the ongoing global slowdown, believes that governments should apply a variety of measures to boost consumption and tax reliefs."Governments should not put all their eggs in one fiscal basket," said Carlo Cottarelli, director of the IMF’s fiscal affairs department. (H)
