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:
“Hard times accounted in large part for the fact that the exposition was a financial disappointment in its first year, but Sally Rand and her fan dancers accomplished what applied science had failed to do, and the exposition closed in 1934 with a net profit, which was donated to participating cultural institutions, excluding Sally Rand.”
—For the State of Illinois, U.S. public relief program (1935-1943)
“The Republican form of government is the highest form of government; but because of this it requires the highest type of human nature—a type nowhere at present existing.”
—Herbert Spencer (1820–1903)
“Something magical happens when parents turn into grandparents. Their attitude changes from “money-doesn’t-grow-on-trees” to spending it like it does.”
—Paula Linden (20th century)