Policies for Increasing Economic Growth and Employment in 2012 and 2013

Report
November 15, 2011

The Economic Outlook

CBO expects that, in 2012 under current law,

  • The unemployment rate will remain close to 9 percent and
  • GDP growth will be about 2½ percent, with the level of GDP remaining well below its potential.

Fiscal Policy Options for Increasing Economic Growth and Employment in 2012 and 2013

One criterion for evaluating fiscal policy options is the impact on the economy per dollar of budgetary cost. Based on that measure of cost-effectiveness:

Higher-impact policies

  • Reduce the incremental cost to businesses of adding employees or
  • Are targeted toward people who would be most likely to spend additional income.

Lower-impact policies

  • Primarily affect businesses’ cash flow but have little impact on their incentives to hire or invest.

Reductions in taxes and increases in government spending would produce short-term economic benefits—but without offsetting actions to reverse the accumulation of government debt, future output and future incomes would tend to be lower than they otherwise would have been.

 

If policymakers wanted to boost the economy in the near term while seeking to achieve long-term fiscal sustainability, a combination of policies would be required: changes in taxes and spending that would widen the deficit now but reduce it later in the decade.

Other Types of Policy Options for Increasing Economic Growth and Employment in 2012 and 2013

CBO examined an illustrative set of potential changes in regulatory policies and other kinds of legislative actions (other than changes in fiscal policy) related to energy and the environment, the financial and health care sectors, and international trade.

CBO concludes:

  • Some changes in policies that CBO considered would probably raise output and employment during the next few years; other changes would probably lower output and employment.
  • The economic effects of those specific changes would probably be too small or would occur too slowly to significantly affect overall output or employment in the next two years.

Ranges of Cumulative Effects of Policy Options on Employment in 2012 and 2013