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Are tax cuts the best way of stimulating economic growth?

Graham Watson

21st January 2024

With the news that the Chancellor is contemplating pre-election tax cuts, Will Hutton's Observer piece here looks at whether this is the best way of boosting economic growth.

It's one of the central debates of macroeconomic policy, and pretty fundamental to the whole Keynesianism v neoclassical debates, and as such the argument has swung in various directions, although at present, the former has come back into fashion, not least in the form of the proposed Green Investment Plan.

Keynesians would argue that the best way of fostering growth is through the multiplied effect of increased public investment.

For neoclassical economists, tax cuts to stimulate increased private sector spending will have a greater effect in boosting growth, because they will have a larger multiplier effect.

Graham Watson

Graham Watson has taught Economics for over twenty years. He contributes to tutor2u, reads voraciously and is interested in all aspects of Teaching and Learning.

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