How do we know that governments will not just spend the additional revenue?

Question: How do we know that governments will not just spend the additional revenue?

Answer: The full question asked by Garth Brazelton was: "How can you equate the fact that government starvign the beast in aggregate may not seem to really happen, but this specific tax increase and situation, given the current high demands placed on government borrowing caused by the war etc, may make such an ideology a reality?"

The article Garth is speaking of is my Will Higher Taxes on Gasoline Lead to Higher Government Spending? We examined the evidence and found there is absolutely no evidence that tax increases lead to higher government spending. None. Nada. Zilch. None.

In fact, we find the opposite is true - that tax increases are correlated with reductions in spending, and tax cuts are correlated with big increasing in spending. The Bush administration is a perfect example. Gale and Kelly suggest why this is the case:

"The data above suggest that policymakers go through periods of fiscal restraint and fiscal largesse and the restraint or largess occurs simultaneously on both the tax and spending sides. That is, periods of fiscal largesse tend to generate declines in taxes and increases in spending (as shares of GDP). Periods of fiscal discipline tend to provide declines in spending and increases in taxes."

Garth's discussion of the war in Iraq shows why an increase in gas taxes would likely lower spending. Given the large U.S. fiscal deficit, the federal government is going to have to go in a period of belt-tightening sooner or later. That belt-tightening is going to have to include spending cuts and increases in taxes. A good candidate for an increase in taxes is the gas tax.

In the end I think Garth ended up answering his own question.

In the next section, we examine how long it would take for a rise in the gas tax to take effect:

Next: How long would it take for a gas tax to be effective?
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