The Stimulative Power of Fiscal Neutrality: A Keynesian View on Taxes and Spending
Conventional economic wisdom often suggests that a tax increase is always a negative force in the economy, reducing consumer disposable income and slowing down growth. However, Keynesian theory offers a sophisticated counter-argument, encapsulated in the powerful concept of the balanced budget multiplier (BBM). This principle demonstrates that when government expenditure rises by the exact same amount as taxation, the net effect is a positive, debt-free boost to the overall economy. This unique outcome is explained by the fundamental mechanics of the multiplier effect and the distinct channels through which government spending and tax collection affect aggregate demand.
