Put Stimulus Measures to the Test on a Benefit-Cost Basis: C.D. Howe

TORONTO, Dec. 10 /CNW/ - The large fiscal stimulus measures recently adopted by Canada and most member countries of the Organisation for Economic Co-operation and Development (OECD) should be evaluated on a benefit-cost basis, according to a study released today by the C.D. Howe Institute. In "Once on the Lips, Forever on the Hips: A Benefit-Cost Analysis of Fiscal Stimulus in OECD Countries," University of Alberta economist Bev Dahlby calculates the minimum economic benefit per dollar of additional spending that a fiscal stimulus project must provide in order to improve welfare.

That minimum benefit required varies widely among OECD countries - depending on countries' differing economies and costs of public borrowing. It also differs between projects that provide direct consumption benefits, such as renovating a hockey arena, and productivity-enhancing projects, such as investing in transportation infrastructure.

In Canada, to be justifiable on a benefit-cost basis, a fiscal stimulus project that improves consumptive public services must provide at least 73 cents in benefits for every dollar of fiscal stimulus. For a productivity-enhancing infrastructure project, the present value of the increase in labour productivity must be at least 61 cents for each dollar spent on infrastructure.

For the study go to http://www.cdhowe.org/pdf/backgrounder_121.pdf

SOURCE C.D. Howe Institute

For further information: For further information: Bev Dahlby, Department of Economics, University of Alberta and Fellow-in-Residence, C.D. Howe Institute; or Alexandre Laurin, Senior Policy Analyst, C.D. Howe Institute, (416) 865-1904, Email: cdhowe@cdhowe.org

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