Gross Domestic Product (GDP) is the aggregate market values of goods and services generated by workers and capital during a certain period of time within a nation (one year for the United States). The Bureau of Economic Analysis releases quarterly reports to describe how the economy grew from the previous quarter. According to the U.S. Census Bureau, “GDP can be viewed in terms of the expenditures categories that compromise its major components: personal consumption expenditures, private domestic investment, net exports of goods and services, and government consumption expenditures and gross investment” (2011). Emphasizing government spending, why would this component have a larger impact on GDP than tax cuts and tax rebates? Several explanations clarify why; the government devotes money to a vast range of affairs, tax rebates and tax cuts merely reallocate existing wealth, and the American public takes a prolonged time to act in response to tax rebates and tax cuts.
To commence, what are the characterizations of government spending, tax cuts, and tax rebates? Government spending can be defined as expenditures by all three levels of government; federal, state, and local. Government spending accounts for approximately twenty percent of GDP. A tax cut is as straightforward as it appears; a reduction in taxation. A tax rebate is also just as simple as it sounds; a refund of taxes formerly paid. Although, it is a possibility an individual may obtain a tax rebate even if taxes were never paid. It might seem all three would deliver large impacts on GDP however, tax cuts and rebates are essentially nothing more than funds that are loaned and ultimately must be reimbursed. If we use history as our representative, government spending ...
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...ventually have to be repaid anyway. It is very evident why government spending has a larger impact on Real GDP than tax cuts and rebates.
"Income, Expenditures, Poverty, and Wealth." U.S Census Bureau. 2011. Web. 01 Dec. 2011.
Mankiw, Gregory. "Is Government Spending Too Easy an Answer." The New York Times. 09 Jan. 2011. Web. 15 Nov. 2011.
"News Release: Gross Domestic Product." U.S. Bureau of Economic Analysis (BEA). 22 Nov. 2011. Web. 01 Dec. 2011.
Stratmann, Thomas, and Gabriel Okolski. "Does Government Spending Affect Economic Growth?. Mercatus. 10 June 10. Web. 20 Nov. 2011.
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