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Now is your chance - Sue Paul Krugman!-)

Thanks Livio. I find this disturbing. It's a lot like blowing your tax refund on a vacation when you have crushing credit card debt.

" great challenge facing government spending "

Would not those problems largely go away (for an 'era') if the GST was increased to its previous level?

Livio:  Short rates may follow the curve a bit up from here, but yields (borrowing costs) and forward yields (yield projections) are near record lows.  The 30 yr is at 3.5%!  That means we can afford more than twice as much debt/revenue as 15 years ago when it was at 8%. Where's the evidence that borrowing costs are going to be higher than they were in the past?  Logically, you'd expect the equilibrium short rate to decline with NGDP growth, as the boomers retire.  And future yields would be expected to be as implied by current forward yields (i.e. extremely low).  Are you making a directional call on the yield curve?

K: While interest rates are low, the mass of debt is much larger than it was in the 1980s so that increases in even these lower rates will add substantially to debt service costs. As for where interest rates are going, your argument makes sense but the expectation is that rates internationally are going to rise in the short to medium term especially given the risk premium to holding debt given the situation in a number of countries eg. in Europe.
Richard: Raising the GST back to 7 percent would probably raise 6-7 billion dollars. If that were directed to health, it would certainly be of assistance but health transfers were raised in 2004 under the Health Accord to "buy change" and we still seem to be in the same situation - there never seems to be enough money no matter how large the revenue increases. The fact is, revenues at he provincial level have been rising in dollars per person.

" The fact is, revenues at he provincial level have been rising in dollars per person."

Are there data for individual provinces? I wonder how much variation there is in per capita revenues between, say resource-rich (i.e. oil) provinces and other provinces over that time period.

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