Does government spending pay for itself?
From our UK edition
At the time of Rachel Reeves’s big-spending first Budget in 2024, the Office for Budget Responsibility (OBR) came under criticism from the left for its apparently overly pessimistic estimates of how much government spending increases economic output. Earlier this week, the OBR published its annual Forecast Evaluation Report, which looked at estimates of these ‘fiscal multipliers’ over the short term. Bigger multipliers mean a larger economy – and a larger economy means more tax revenues. That’s why people say spending can pay for itself. The OBR has a range of multipliers it uses as starting points for different types of spending, dialling them up and down according to its judgements on the state of the economy (is there spare capacity to fill?) and the policy in question.