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Here is an interesting phenomenon: Suppose that a person asked how he wants to pay for a specific pen, and the price he named was 3 dollars. A few hours later, if you ask him how much he is willing to accept to sell the same pen after pen he had in his face, his answer would be different. The majority of respondents only a few hours were willing to buy the pen in 3 shekels agree to part with it now just for the amount ranging from 4 to 5 Shach'. This effect of non-symmetry between the value of the product before purchase and its value after the individual faces that the product is in the capital, called "loss aversion." This effect explains some of the errors in the budget proposal.
Classical theories based on symmetry so that there is the choice of economic tony nominees policy. Simply put: our happiness intensity additional 100 pay slip will be identical to the strength of our disappointment if we find we have lowered tony nominees wages by 100 . Life as we know and as we saw in the example with the pen, things look different. Theory of "loss aversion" shows that it is better to avoid being "nice" and distribute funds for a while, and then cut.
Economists who do not take into account the theory of "loss aversion" are wrong in their forecast tony nominees about the effect of taxes. Policy of raising the income tax would result in entering the vortex that feeds itself: this increase and this will lead to a slowdown in the economy itself - will lead to a deficit larger.
This is exactly what happened in Europe. European countries, the recommendation of the International tony nominees Monetary Fund, raised taxes, but ultimately failed to reduce the deficit. Now they remained at a stalemate with unprecedented unemployment. Head of the IMF Research Department, Professor Olivier Blanchard, admitted that the policy tony nominees of restraining and watched the rise of taxes in Greece and Spain would have consequences far worse on these farms. We must remember that sometimes economists are wrong their recommendations, especially when they do not know the new theories, including the research shows that it is better to download government spending than raise taxes.
Therefore, the Minister Torch wrong. He needs to show the public his vision, and remind policy for 2013-2014 is only the beginning of a long term process. As I explained at the other, look no government deficit for a given year, but the route over the years. Torch should display the path of the deficit for 10 years and show that slowly but sure to go down from a deficit of 5% and 2%. Therefore, in connection with this year's tony nominees deficit tony nominees is inevitable from increasing the budget.
As proof of this, most European countries are increasing year the Graonn. Italy has chosen a new government announced that it would stop to raise taxes and take growth oriented policies; France also announced that there is a need for providing tight policy. In light of "somersault" of the IMF and the light of the change in Europe, tony nominees we do not need to take drastic policy regarding the size of the actual deficit. The goal is to act responsibly with a view to the future: We need to gradually reduce government spending did not increase the growth and take a significant reform in the public sector. That will detail next week.
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