Drautzburg, Thorsten & Uhlig, Harald.
The debt crises in the Eurozone and the US are reminders that all government expenditures must eventually be financed by tax revenues. This column analyses the effect of the US fiscal stimulus programme and argues that abstracting from financing decisions presents a skewed version of the net benefits to society.
Government expenditures have to be financed by taxes, eventually – a fact driven home by the current debate on US debt ceiling and the Eurozone sovereign-debt crisis.
The difficult political debate also shows that financing government expenditure is not trivial. If governments could easily increase their tax revenue without hampering economic activity, the debt ceiling debate would be void and Greece would not be receiving outside support. In reality, taxes distort economic decisions.
Πηγή: Voxeu