Controversial Nobel prize winner for economics Joseph Stiglitz has criticised President George W Bush's economic policy.

Speaking to the BBC's World Business Report, Bill Clinton's former economic adviser said tax cuts were not helping the US economy.

"The evidence is that people are spending $1 out of $5 of their tax cut," the former World Bank chief economist said.

He called for a temporary net investment tax credit as well as better unemployment insurance, while warning of the dangers of cutting state spending.

Last Friday, President Bush asked members of Congress to quickly implement an additional $60bn worth of tax cuts and credits in order to stimulate the US economy following the 11 September terror attacks.

"He took the advantage of the situation to say here is what I wanted all along, here is another selling point...This [tax cut] was designed in a very different fiscal environment," Mr Stiglitz said, though he admitted that more stimulus is needed and some could be provided by the money spent on reconstruction.

What should Bush do?

Other measures would stimulate the economy quicker and with greater certainty than a tax cut.

The Bush administration should look at "deepening and extending" unemployment insurance, he said.

Given that state and local spending is usually cut during a slowdown, exacerbating it, he suggested a "revenue sharing plan, that would provide more money, especially for education and health, things that will be cut".

"The social returns from public investment are very high," he added.

A temporary net investment tax credit could encourage investors to unlock their money now and compensating them for the current risky environment, he said.

Mr Stiglitz, also a leading critic of the IMF, was awarded the Nobel prize on Wednesday.

He shared the prize with Americans George Akerlof of the University of California, Berkeley, and Michael Spence emeritus professor at Stanford University, for their work on "asymmetric information and markets".

A little knowledge...

Their research sought to explain how markets can be distorted when one side knows more than the other - implicitly suggesting that intervention might be necessary to restore fairness.

"Markets where information is imperfect behave in fundamentally different ways [than markets] where information is perfect," Mr Stiglitz said.

"The hope was that if information was good enough, the results could be close enough to the optimal result.

"The existence of asymmetries of information, even if very small, can have profound effects on the nature of equilibrium and efficiency of equilibrium," he added.