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How governments can juice economic growth

Brittany De Lea

The U.S. economy grew at a pace of 2 percent in the second quarter, and forecasts indicate that slower growth could persist through the end of the year.

Some economists have even said they believe slow growth will be the new normal for the U.S. economy. The Federal Reserve Bank of San Francisco, for example, estimated GDP growth will remain between 1.25 percent and 1.75 percent, owing to demographic trends and productivity challenges.

For comparison, prior to the recession, GDP regularly grew at a rate of 3 percent or more.

The U.S. is not alone, however. The International Monetary Fund in July projected the global economy would grow at a rate of 3.2 percent this year – among advanced economies growth is projected at a more muted 1.9 percent.

On top of that, monetary policy options are limited as interest rates remain low (even negative in some countries) and inflation soft.

However, there are some ways governments can act to rev their economies up.

“With monetary policy out of ammunition public policy is more important than ever before, and if governments want to create growth, there are many ways they can do that today,” Deutsche Bank Securities chief economist Torsten Slok wrote in a note to clients on Friday.

Here’s a look at some of the steps governments across the globe can take, according to Deutsche Bank Research.

Tax structure:

One way to increase growth includes adjusting tax structures away from a reliance on income taxes and toward the taxation of property and consumption, according to the researchers.

Economies that could specifically benefit from this policy include Germany, Japan and Canada.

Tax base:

Broadening the tax base and reducing tax expenditures can help lift growth – a recommendation that would help Germany, Switzerland and Finland.

Agriculture subsidies:

Governments can also reduce production and trade-distorting support to their agriculture sectors, Deutsche Bank Securities researchers say. This could benefit members of the European Union.

Infrastructure:

Governments could also leverage infrastructure to boost economic growth by introducing or extending user road pricing – those include tolls, congestion charges or other charges designed to discourage the use of certain vehicles. The U.S. is listed as a country that may want to implement this strategy.

Another method would be increasing investment infrastructure – which has been a goal of the Trump administration but has yet to come to fruition. President Trump and Democrats agreed in April agreed to pursue a $2 trillion infrastructure revamp. It’s unclear whether that initiative will gain any steam ahead of the 2020 election given recent developments, including a formal impeachment inquiry announced this week by House Speaker Nancy Pelosi.

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