OTTAWA, March 31 /CNW Telbec/ - Infrastructure spending provided the largest stimulus to the economy during the recession, according to a new Conference Board of Canada report released today.
"Some fiscal stimulus policies have a larger impact on the economy than others. Tax cuts can be given out quickly, but the impact on the economy tends to be short-lived and muted," said Pedro Antunes, Director, National and Provincial Forecast. "Infrastructure spending takes longer to get underway, but provides a bigger bang for the buck."
Every dollar spent on infrastructure increases real gross domestic product (GDP) by as much as $1.20 in an economy performing below potential. Increased infrastructure spending is estimated to have contributed about 0.4 per cent to overall economic growth in Canada in 2009. And as spending peaks this year, another 0.5 per cent will be added to real GDP growth in 2010.
When completed, infrastructure projects can add to economic output, lower business cost, reduce commute times and bolster productivity. However, they can take a long time to get started and often require lengthy construction time.
Income tax measures, such as personal and corporate tax cuts, have a smaller impact on total economic growth. For every dollar spent cutting taxes, real GDP is expected to increase by 40 cents for personal income tax cuts and 30 cents for corporate income tax cuts. Although these measures are timely, they are expected to add only marginal amounts to real GDP growth over the next two years.
The report, Lessons From the Recession and Financial Crisis: Lesson 5-Sound Fiscal Policy Is Key to Keeping the Economy Afloat in Hard Times, is part of the Conference Board's ongoing series. The Conference Board's Forecasting and Analysis team has examined the developments of the past year and has drawn key lessons for the world and for Canada that deserve priority discussion among policy makers and business leaders.
SOURCE Conference Board of Canada
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