Effects of taxing and spending

Back in 2009 Alesina and Ardagna did a survey of the effects of large changes in fiscal policy.

Unsurprisingly they found that large revenue increases seldom increased revenue, indicating that most governments and most taxes are near their Laffer maximum, and that spending increases were not very stimulatory. Indeed often spending cuts stimulated the economy, which suggests that at the margin government spending is of negative absolute value, not just negative net value – that people would be better off if the money was spent blowing stuff up in distant lands.

This shows that supply side effects of large changes in fiscal policy substantially outweigh demand side effects.

This explains and predicts the failure of “austerity” in Britain and France, since the “austerity” consisted of increasing expenditure relative to GDP, but increasing taxes – measures to increase the power of the parasitic ruling class, and diminish the power of the productive class. For austerity to work, has to be austere for the rulers. Similarly, it predicts the failure of “stimulus” in the US, since the stimulus consists of the government doing even more damage than before.

Alesina tells us that spending does not stimulate, and cutting spending does not depress. He provides a couple of politically correct explanations involving expectations for this observation, but fails to mention what seems to be to be the glaringly obvious explanation: That government transfer spending discourages people, especially women and protected minorities, from working, and that government direct spending consists, at the margin, not of roads, public safety, and garbage collection, but of evil people doing hurtful things.

2 Responses to “Effects of taxing and spending”

  1. Joseph says:

    “Britain… “austerity” consisted of increasing expenditure relative to GDP, but increasing taxes ”

    Conservatives in 2010 announced that 2/3rds of the deficit reduction would be financed by cuts in spending

  2. Matthew says:

    OT: I’ve been reading ESR for years, but was a good little conservative proggressive until the last couple. I am now immensely tickled any time you show up at Armed and Dangerous and start the provocations. I wonder whether I ever was offended by you in the past and blocked it out (like a good little progressive).

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