The Wayne State blogging presence is growing (at least for this week) as Robert Rossana is guest blogging this week for the Detroit Free Press on the stimulus package. Here is an excerpt from today’s post:
All governments have a budget constraint stating that, sooner or later, spending must be paid out of tax revenues. Equivalently, deficits today must be balanced by surpluses in the future. Given the deficits that we are now running and are likely to run next year – which are so large that it is unlikely we can “grow” our way out of them – taxpayers must rationally anticipate tax increases in the future.
So is it likely that households will go on a spending spree in response to this additional government spending or will they try to save more, anticipating these future tax increases? Some economists suggest that, because of these implied future tax liabilities, the Keynesian multiplier is actually less than one; as households save in anticipation of future tax liabilities, GDP will rise by less than the increase in government spending.