Government Spending or Taxation? Government spending:
1) greater impact on the economy than a tax cut of the same amount( because increase in autonomous spending causes even greater increase in autonomous spending because of the spending multiplier)(when taxes are cut, you have more disposable income but people don't spend it all they save some)
2) can be focused on specific regions of the country (such as areas experiencing high unemployment)
Limitation
the lag is greatest with government spending
Taxation:
1) often viewed more favourable by public
2) tax cuts can be implemented for a short period of time and then the tax can be re-imposed; government spending is hard to stop or reverse
3) changes in taxes can be implemented faster than government spending
*All info taken from lecture notes "Fiscal Policy," slide 15.*
Government spending:
1) greater impact on the economy than a tax cut of the same amount( because increase in autonomous spending causes even greater increase in autonomous spending because of the spending multiplier)(when taxes are cut, you have more disposable income but people don't spend it all they save some)
2) can be focused on specific regions of the country (such as areas experiencing high unemployment)
Limitation
the lag is greatest with government spending
Taxation:
1) often viewed more favourable by public
2) tax cuts can be implemented for a short period of time and then the tax can be re-imposed; government spending is hard to stop or reverse
3) changes in taxes can be implemented faster than government spending
*All info taken from lecture notes "Fiscal Policy," slide 15.*