US, British cuts will have effect
Tuesday March 01 2011 | 09:25 AM

FISCAL CONSOLIDATION in advanced economies could constrain growth in developing countries like those in the Caribbean.

Barbados Economics Society president Dr Winston Moore made this point during a Global Market Outlook seminar hosted by First Citizens Investment Services at Hilton Barbados Thursday.

He noted that both the United States and Britain “have fiscal problems just like Barbados and they all have to get their fiscal accounts in line”.

“The United Kingdom has started cutting their expenditure [and] in the United States the Republican Party is pushing hard to cut expenditure,” he said.

Moore noted that there was some debate about how spending cuts would affect economic activity in those countries but they could have implications for tourist arrivals and exports from the Caribbean.

The lecturer in the Department of Management Studies at the University of the West Indies, Cave Hill Campus, and former central banker said one camp of economists suggests that when a country cuts expenditure, it experiences growth in economic activity.  

“The reason is that individuals realise that a large fiscal deficit and a high level of government debt can only be financed in one way – higher future taxes.

“So that if I know that Government plans to cut taxes in the future . . . I might save a bit more rather than doing more spending,” Moore said.

On the other hand, he said, some economists argue that expenditure cuts could reduce economic activity since once government spending falls, there is less economic activity.