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Note that for the increase in expected future income to transform a contractionary fiscal policy into an expansionary one in the short-run, these results arising from expectations must not only arise but also be large enough to overwhelm the normal channels of contraction.
The mechanism for this policy has been a contractionary fiscal policy, including cuts in development expenditure.
The contractionary fiscal policy regime needs to be relaxed, with a shift from revenue mobilisation to current expenditure reduction.
Moreover, the need for contractionary fiscal policy measures will remain substantial and contribute to further slackening of growth in 2013.
The financial support packages of the IMF, the euro-zone countries and the EU, as well as the contractionary fiscal policy package that has been announced, have lessened the risk of a new financial crisis in the euro zone.
Recovery is also slowing in the United States, one reason being a shift toward a contractionary fiscal policy. High unemployment and a need for households to increase their saving will limit private-sector demand for the next few years.
Given the positive tendency of the labour market and a somewhat less contractionary fiscal policy, rising consumption will contribute increasingly to GDP growth in 2008 and 2009.
Despite a less contractionary fiscal policy in many countries and an improved labour market, worldwide GDP growth will slacken slightly in 2007 and 2008.
Partly because of this factor, in combination with the contractionary fiscal policy, household consumption will continue to grow at a rather modest rate (see Diagram 40).
But the purchasing power of households will be limited by a more contractionary fiscal policy, particularly in 2007, when the tax on consumer goods is expected to increase.
Appropriate timing in the NIER's opinion would entail accepting a somewhat more contractionary fiscal policy in 2006 and 2007, with additional measures to strengthen the budget by SEK 5 billion in 2006 and a further 10 billion in 2007, in order to come closer to the 2-percent target.
This would be the case even if the more contractionary fiscal policy were offset by a more expansionary monetary policy.