IMF: Budget Cuts Don't Work

Report also says tax hikes have negligible impact

A new study (pdf) by the International Monetary Fund raises a further warning flag for fiscal cliff negotiators in the U.S. In what it bills as the first-ever study of its kind, the fund analyzed decades of data on the world's major industrialized countries to estimate how changes in government spending or revenue affect economic output.

The news isn't good. Given current circumstances, with a U.S. economy that is growing but still trying to make up lost ground from the 2008 crisis, a one dollar change in government spending could knock as much as $1.80 in output from the economy – what fund researchers called a "statistically significant…and sizeable" outcome.