The IMF questions calls for more austerity in the United States.
There are many other advanced economies, however, where fiscal policy has more freedom. If growth slows, these countries should avoid further fiscal tightening. They should allow the impact of an economic downturn on revenues and spending on things like unemployment benefits to raise the deficit temporarily.
Among those countries with more flexibility, there are some—including in the euro area—where very low interest rates or other factors are creating adequate fiscal space to allow them to reconsider the pace of deficit reduction this year.
Take for example the United States. Based on current policies, the deficit would decline by over two percentage points of GDP in 2012, the largest single year adjustment in four decades. That’s too much. Renewing the payroll tax cut and extending unemployment compensation for the long-term unemployed—two measures set to expire this year—would provide welcome support to the economy. Actions like these would be greatly facilitated by the adoption of credible medium-term adjustment plans, which are still missing in some key economies. (emphasis in original)
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