spending rises by 1% and government revenues rises by 1.28%. Government revenue rises
by more than government spending since over the sample government revenue’s share of
GDP is 0.162 while that of government spending is 0.208 thus we require government
revenues to rise by (0.208/0.162)%. The results are shown in Figure 12. These show
that on impact there is a small expansionary effect on GDP but thereafter the depressing
effects of the tax increases dominate the spending effects and GDP, consumption and
investment fall.