Is It Easier for Governments to Change Taxes or Spending Plans?

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Fiscal Multiplier
Chapter 21
Many countries worldwide have countered economic recession through government spending and tax cuts. For instance, the G20 nations introduced a stimulus of 2% of their gross domestic product (GDP) in 2009 and 1.6% in 2010 (“Much Ado about Multipliers”458). These group economies came into a consensus about the fiscal stimulus to boost their economic growth. In particular, a fiscal policy is the government’s use of tax policies and spending to impact the economic conditions, particularly macroeconomic conditions, such as inflation, economic growth, and employment. In that light, I think it is easier for the government to change its spending or taxes based on the country’s economy.
Richard Kahn, John Maynard Keynes’ student, introduced fiscal multiplier in 1931. He showed how it can be used to increase government spending or tax cuts. For example, a multiplier of one depicts that the government injects $1 billion in its spending to stimulate various economic activities (“Much Ado about Multipliers”458). An economy operating normally or at full capacity should have a fiscal multiplier of zero. However, during an economic recession when manufacturers and employees have nothing to do, it would be appropriate for the government to give a fiscal boost. Although it is easy to change taxes or government spending, a proper analysis should be done to ensure that the multiplier will have a positive effect on the economy. For instance, a tax cut targeting poor and low-income earners can have a significant impact on spending compared to one meant for the wealthy individuals. Besides, poor people spend...