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:
“You have been trapped in the inescapable net of ruin by your own want of sense.”
—Aeschylus (525–456 B.C.)
“Freedom of men under government is to have a standing rule to live by, common to every one of that society, and made by the legislative power vested in it; a liberty to follow my own will in all things, when the rule prescribes not, and not to be subject to the inconstant, unknown, arbitrary will of another man.”
—John Locke (1632–1704)
“What is charm then? The free giving of a grace, the spending of something given by nature in her role of spendthrift ... something extra, superfluous, unnecessary, essentially a power thrown away.”
—Doris Lessing (b. 1919)