Monday, December 29, 2008

Automatic Stabilizers

One reason advanced for the relative modesty of European stimulus programs is the fact that European countries, with their comparatively large welfare states, have built-in automatic stabilizers that ensure an increase in net government expenditures when the economy slows and tax receipts decline. France today announced a third-quarter budget deficit of 15.6 billion euros, which will bring the total debt close to 1.3 trillion euros, or roughly 66.1% of GDP. Next year, the debt is expected to rise to 69.1% of GDP.

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