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:
“Here’s a fish hangs in the net like a poor man’s right in the law; ‘twill hardly come out.”
—William Shakespeare (1564–1616)
“It’s no go the Government grants, it’s no go the elections, Sit on your arse for fifty years and hang your hat on a pension.”
—Louis MacNeice (1907–1963)
“We should meet each morning, as from foreign countries, and spending the day together, should depart at night, as into foreign countries.”
—Ralph Waldo Emerson (1803–1882)