Austerity, Debt, and Taxes

Date: Tuesday, Sept. 23
Time: 4 pm
Location: Room 109, Arts Building

About this event

Guest speaker: Bev Dahlby, Senior Fellow of the Fraser Institute

The presentation will provide background for assessing the upcoming federal budget, which Prime Minister Carney has characterized as an “austerity and investment budget”. It will be organized around three questions.

First, Why Has the Federal Debt Ratio Gone Up, Gone Down, and Gone Up Again Over the Last 40 Years? Changes in the federal debt ratio are decomposed into changes in effective interest rates on debt, changes in the growth rate of GDP, and changes in the primary budget balance.

The second part addresses the question Is Debt Reduction (i.e. Austerity) Worthwhile? It will summarize the results of Dahlby's recent research paper, which uses a Monte Carlo simulation model to conduct a cost-benefit analysis of a policy of reducing the federal debt ratio by 10 percentage points.

In the third part, a simple tax smoothing model is used to address the question—Should Increases in Federal Capital Spending Be Financed by Debt? The model indicates the factors, such as the current debt ratio, projected growth rates and interest rates, and changes in operating expenditures, that determine the extent to which an increase in investment should be financed by debt.

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