How to raise public revenues, reduce public debt, and stimulate job-creating growth

In economics and economic policy, as in any other social science, it's always more effective to draw lessons from real-life history rather than follow an abstract theory that is impossible to verify or replicate in real life.

Fortunately, recent history (1990s) provides an excellent example of how to successfully raise public revenues, reduce public debt and stimulate job-creating growth: An effective combination of several coordinated policy measures generated sufficient revenues to pay down public debt, finance a well-designed economic stimulus, and lay the ground for the longest period of economic growth and record job creation in US history.

The initial economic situation was similar to the predicament of the Southern European periphery today:

- high levels of public debt
- rising interest payments on the debt
- rising budget deficits as a consequence of a banking crisis
- rising unemployment

The policy measures that helped reduce the public debt and laid the groundwork for strong job creation and long-term economic growth:

• To quickly raise much needed public revenues and reduce public debt, the Clinton administration (1993-2001) implemented drastic tax increases on corporations and the rich (people with incomes over $180.000). The super-rich (people with incomes over $250.000) had to pay an additional 10% surcharge. 
• To relieve the tax burden on lower income people and to promote consumption, the tax rate for lower income groups was lowered. For those who had so little income that they did not pay taxes at all, the Clinton administration introduced the negative income tax, i.e. they would get money from the US Treasury after filing their tax return. 
• To further reduce the debt, there were also expenditure cuts, but these were focused on corporate welfare (i.e. unproductive subsidies) or line items that provided little economic benefit. 
• To create approx. 500.000 jobs, the Clinton administration implemented an economic stimulus package including tax rebates for small and medium enterprises (SMEs), i.e. enterprises that create the majority of new jobs; 'empowerment zones' and community banks to finance investments in run-down regions; financing of investments in public infrastructure projects well as for the repair of environmental damages. 
• To ensure long-term growth, the Clinton administration drastically raised expenditures for education and investments in 'new technologies/sectors with future growth potential, i.e. the information technology 'highway' and others. 

These policies were so successful that, at the end of the Clinton administration, the United States government had a budget surplus so large that the Federal Reserve began to worry about zero interest rates on US Treasury bonds. As mentioned above, they also generated a record number of jobs (in the millions) and produced the longest period of economic growth in US history, not to speak of a booming stock market.

Whether this or a similar combination of policies will be as successful in Southern Europe as they were in the United States no doubt depends on a variety of individual country factors. But I think it's worth a try !

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Further details of the policies described above may be drawn from Bill Clinton's autobiography, "My Life". To verify the claims made in this post regarding the success of the policies described above, you are welcome to check the statistics for the United States in the 1990s.