In addition to my regular job, I have been trying to develop a business. I have noticed two years in a row now that I experience a great boost in sales after people get income tax refunds. Now I realize that in that case, mostly people are simply getting back their own money. But it makes me wonder, does government spending produce economic growth? If I understand them correctly, some say that this is never true. What do you think?
In addition to my regular job, I have been trying to develop a business. I have noticed two years in a row now that I experience a great boost in sales after people get income tax refunds. Now I realize that in that case, mostly people are simply getting back their own money. But it makes me wonder, does government spending produce economic growth? If I understand them correctly, some say that this is never true. What do you think?
Yes, which explains well why government spending is part of the calculation for GDP, Aggregate Demand, etc.
However to the OP question, tax refunds are not an example of government spending in these types of equations. All that is happening is people have more available funds to spend once they get their income tax return, and predictably there is an immediate effect on the economy over the 1st quarter and into the 2nd (close to that income tax deadline.) It is just enough to suggest certain business models try to capitalize on that additional income. Anyway, in economics that spending increases from a tax refund falls under consumer spending.
A better example of government spending equating to increased GDP is an infrastructure or technology investment project. Then the math is applied where you think it would be.
In addition to my regular job, I have been trying to develop a business. I have noticed two years in a row now that I experience a great boost in sales after people get income tax refunds. Now I realize that in that case, mostly people are simply getting back their own money. But it makes me wonder, does government spending produce economic growth? If I understand them correctly, some say that this is never true. What do you think?
In addition to my regular job, I have been trying to develop a business. I have noticed two years in a row now that I experience a great boost in sales after people get income tax refunds. Now I realize that in that case, mostly people are simply getting back their own money. But it makes me wonder, does government spending produce economic growth? If I understand them correctly, some say that this is never true. What do you think?
In addition to my regular job, I have been trying to develop a business. I have noticed two years in a row now that I experience a great boost in sales after people get income tax refunds. Now I realize that in that case, mostly people are simply getting back their own money. But it makes me wonder, does government spending produce economic growth? If I understand them correctly, some say that this is never true. What do you think?
Wealth and economic growth are produced by industry, by converting labor and raw materials into goods and services that are worth more than what it cost to produce them.
Government very rarely does that. Government very rarely does anything better, economically, that moving wealth around, consuming some of it in the process. Any wealth that anyone gets from government, is wealth that government took from someone else. Any economic activity that is stimulated in one part of the economy, is at least matched by a suppression of economic activity somewhere else.
As you correctly understand, the tax returns that that people receive, that spur them to buy stuff, is their own money that government previously took from them. Though it means, at that part of the year, that these people have a sudden short burst of money, stimulating a short burst of spending and economic activity, that is that much less money that they had the rest of the year, reducing by that amount the more steady spending and economic activity in which they would have engaged.
The spending will almost always increase economic growth, but the money must come from someone, who has less. That will decrease the GDP. Both sides of the Transaction have a multiplier one positive one negative. Also, both sides will impact over time.
Yes, which explains well why government spending is part of the calculation for GDP
It may grow the GDP but it also grows debt. The money had to come from somewhere and GDP growth does not always equate to a healthy economy.
Is it a smart and effective stategy for pulling a economy out of a slump ? Hell no.
The question is not whether it produces economic growth, the question is....is it the most efficient way to produce economic growth?
You pump enough capital into any economy and it will grow. That does not make it correct or sustainable.
When the government prints money that it does not have, it can spur industry into converting raw material and labor into goods, thus creating jobs and increasing consumption. Of course this sort of Keynesian view can lead to debt. However, the U.S. government has accumulated quite a bit of debt and the economy still appears to be going. How do you explain that?
You pump enough capital into any economy and it will grow. That does not make it correct or sustainable.
I think the answer is a definite "sometimes".
Yep. But the U.S. economy has been run in this way for a while so it can be sustainable for quite a while it seems.
Yep. But the U.S. economy has been run in this way for a while so it can be sustainable for quite a while it seems.
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?