Net Government Spending
The other important aspect of the multiplier, is that to the extent that government spending generates new consumption, it also generates "new" tax revenues. For example, when money is spent in a shop, purchases taxes such as VAT are paid on the expenditure, and the shopkeeper earns a higher income, and thus pays more income taxes. Therefore, although the government spends $1, it is likely that it receives back a significant proportion of the $1 in due course, making the net expenditure much less than $1. Indeed, in theory, it is possible, if the initial expenditure is targeted well, that the government could receive back more than the initial $1 expended.
Read more about this topic: Fiscal Multiplier
Famous quotes containing the words net, government and/or spending:
“A culture may be conceived as a network of beliefs and purposes in which any string in the net pulls and is pulled by the others, thus perpetually changing the configuration of the whole. If the cultural element called morals takes on a new shape, we must ask what other strings have pulled it out of line. It cannot be one solitary string, nor even the strings nearby, for the network is three-dimensional at least.”
—Jacques Barzun (b. 1907)
“Good government is known from bad government by this infallible test: that under the former the labouring people are well fed and well clothed, and under the latter, they are badly fed and badly clothed.”
—William Cobbett (1762–1835)
“I have been spending my first night in an American “summer hotel,” and I despair of the Republic! Such dreariness, such whining callow women, such utter absence of the amenities, such crass food, crass manners, crass landscape!... What a horror it is for a whole nation to be developing without a sense of beauty, and eating bananas for breakfast.”
—Edith Wharton (1862–1937)