Switch to Desktop Site
 
 

Looming 'fiscal cliff' is hurting US economy now, economists warn

Next Previous

Page 2 of 4

About these ads

"Those two candidates are miles apart," says Steven Davis, a University of Chicago economist. "I cannot think of another time in recent decades when there appeared to be that much uncertainty about the tax treatment of business income riding on an election."

The uncertainty surrounding the fiscal cliff and other looming tax decisions, he says, is having an impact on businesses today.

It's showing up in surveys of businesses, including in the informal "beige book" interviews conducted by the Federal Reserve, Mr. Davis says. He also cites recent research, which he conducted with economists Scott Baker and Nicholas Bloom of Stanford University, on the link between policy uncertainty and economic growth. The researchers drew on several data sources to create an index of uncertainty, and found that a spike in such doubt often foreshadows weakness in the economy.

"When policy uncertainty levels are high, that does not bode well for future economic performance," Davis says. In his view, a new recession is possible, with risk coming from events in Europe as well as the US.

The fiscal cliff, by some estimates, could suck about 5 percentage points out of gross domestic product in 2013, if various tax cuts expire as scheduled, alongside some spending cuts.

Many forecasters share Davis's concern, at least to some degree. 

Next Previous

Page 2 of 4

Share