Friday, August 2, 2019

News Flash - Recessions reduce GDP growth

All of the projections I have seen from the CBO or Social Security assume that nominal GDP will increase about 4% forever, like clockwork.  Here is a chart of just the next 10 years.

2019 21,485 4.40%
2020 22,523 4.83%
2021 23,558 4.60%
2022 24,616 4.49%
2023 25,735 4.55%
2024 26,907 4.55%
2025 28,109 4.47%
2026 29,349 4.41%
2027 30,637 4.39%
2028 31,972 4.36%
2029 33,363 4.35%
2030 34,800 4.31%

However, nominal GDP growth slows down or even turns negative during a recession. Look at 2008 and 2009.

Year Nominal GDP Growth
2000 10,252
2001 10,582 3.22%
2002 10,936 3.35%
2003 11,458 4.77%
2004 12,214 6.60%
2005 13,037 6.74%
2006 13,815 5.97%
2007 14,452 4.61%
2008 14,713 1.81%
2009 14,449 -1.79%
2010 14,992 3.76%
2011 15,543 3.68%
2012 16,197 4.21%
2013 16,785 3.63%
2014 17,527 4.42%
2015 18,225 3.98%
2016 18,715 2.69%
2017 19,519 4.30%
2018 20,580 5.44%
Source https://www.thebalance.com/us-gdp-by-year-3305543

Of course we don't know exactly when recessions are going to hit and the time between them keeps getting longer, but I think every ten years going forward you should include a recession in the calculations.

Question: what effect does a recession have on government revenues (taxes)?

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