The International Monetary Fund reports that increased government spending on public education will have a more powerful impact on the financial crisis than tax cuts.
This is the conclusion of a note from the IMF to the G20 countries that was released on 5 February, and reported by media including the Financial Times the next day. In the note, the IMF calls for "more aggressive and concerted policy actions" by the G20 countries.
It also repeats the Fund's call for stronger fiscal stimulus "to avoid a deep and prolonged recession," and emphasizes that such programmes "should support demand for a prolonged period of time and be applied broadly across countries with policy space to minimize cross-border leakages."
The IMF has calculated multipliers for three policy options: tax cuts, infrastructure investment and "other" government spending. Public education would be included in the latter.
The paper says that the "other" category includes additional spending on safety nets, assistance to small and medium enterprises, support for housing markets and transfers to state and local governments. In many North American and European countries, a primary example of transfers to state and local governments is for funding public education.
The IMF assessment makes the point that “other” government spending has a considerably larger multiplier than tax cuts (1.0 vs 0.6), although infrastructure investment has an even higher multiplier (1.8 vs 0.6). Clearly, tax cuts are the least effective policy option.