IT IS ALL ABOUT GOLDEN RULES

It’s interesting to think about the now-famous “golden rules”. I just read an article called “Two different fiscal rules”, following my professor’s advice.

Reads as follows: “One more Golden Rule: States can only borrow to invest and not to finance current expenditure (this latter has to be financed with its own taxes). Furthermore, this  new golden rule encourages the States of the Union to invest everything they borrow on projects capable of generating enough income to pay the annual cost of debt they’ve acquired. I.e. the "other golden rule” allows States to have budget deficits provided it has been fully invested and, generally cannot be longer than two consecutive years, except in exceptional cases. If the State does not get sufficient return on their investment to pay its debt will inevitably have to raise taxes to pay.“

I agree with almost everything, except in the last part. I don’t think that population has to pay politicians’ mistakes. The cuts would have to come from government spending (Mainly of their own salaries and of wasteful spending, aids to syndicates, aids to other countries. The aids to other countries should be done when the national economy is expanding, and it’s not now). Always from government spending, but not from taxes.

We also should note that political interests change as elections approach (short run effect). So they could make erroneous investments just to get some extra votes. What’s the only way this doesn’t happen? They have to pay for their mistakes.

I guess I’m right.. What do you think?


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