Keynesian Tax and Spending Multipliers

Feb 02 2009

Many proponents of economic stimulus rely on estimates of “multiplier” effects on output that can follow from the use of tax cuts or government spending to try to boost economic activity. The idea is that if you cut taxes or increase government spending, recipients of those tax cuts or spending increases will realize increases in their after-tax incomes and will spend some of those gains. When the original recipients spend some of those gains, the benefits are extended, or “multiplied,” to generate further effects on incomes and spending. This paper discusses Keynesian multipliers and what economists know about the sizes of those multipliers.

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  • Keynesian Tax and Spending Multipliers

    Many proponents of economic stimulus rely on estimates of “multiplier” effects on output that can follow from the use of tax cuts or government spending to try to boost economic activity. The idea is that if you cut taxes or increase government spending, recipients of those tax cuts or spending increases will realize increases in their after-tax incomes and will spend some of those gains. When the original recipients spend some of those gains, the benefits are extended, or “multiplied,” to generate further effects on incomes and spending. This paper discusses Keynesian multipliers and what economists know about the sizes of those multipliers. Keynesiantaxandspendingmultipliers.pdf (499.3 KBs)