In order to stimulate the economy should you change government spending or change tax laws?

Answer 1

Either can work or not work.
I suspect that increasing government spending has nice short term gains, but if the spending results in deficiet spending (as increasing spending w/o increasing taxes likely would), it is a temporary boost to the economy. And not all spending increases would be beneficial, or even to the same degree. For instance, I suspect that increasing government spending to say buy military weapons is very temprary gain to the economy with a rather small acceleration to the economy, as opposed to say increasing spending for healthcare for the poor, which will have a higher accelerating effect (meaning that the money spent will circulate through the economy far more).
Tax laws might be similar; lowering taxes are likely to increase consumer spending and savings in the short term, but if taxes are lowered w/o decreasing spending, it is a very temprary effect. Increasing taxes to spend on military weapons seems like a worse case scenario, while increasing taxes to pay for health care for the poor is likely to have a net benefit to the economy and be a longer term benefit.
And how you change the tax laws is as important as how you spend the money; raising taxes on things which have little economic benefit like higher taxes on luxury items is likely to do less harm than raising taxes on the poor.

Answer 2

I think your question might be intending to ask, "in order to optimally stimulate...?" Either will stimulate the economy, provided their are sticky prices, sticky wages or sticky interest rates. Otherwise, either will simply alter inflation and have no stimulative effects at all.

If you are asking on an optimality basis, then it would be which of the two choices, or convex combination of the two choices produces the highest degree of Pareto efficiency. If the government spending is to build necessary roads in places already well travelled but with inadequate roads, or to repair essential infrastructure, or to build improved schools, then government spending is really public investment and it would have a long run stimulative effect. On the other hand, if the government spending is really consumptive, then it would only be optimal in the time of catastrophic economic collapse. An example of consumptive spending would be to fund the National Helium Reserve, which still exists, that was funded for about 8 decades to maintain a national reserve of helium in the event of blimp warfare. It was really a pork barrel project to put jobs in a community. Once in existence, it was hard to get rid of and still exists, though it is being phased out.

Tax reductions would be optimal if the reduction isn't from distortive taxation. Imagine a tax cut on wealthy Republican contributors to political campaigns. That really just transfers money from one group to another via taxation. On the other hand, an across the board tax decrease would put money into the hands of the households which would be more efficient.

Answer 3

For take the best decision you must measure which of two policies produce more stimulation to the economy and see the "collateral damage" of each measure. Example:
The technicians that are working for me says that is the government spending produce an economic growing of 1.6% and the reduce of tax stimulates it in 0.3%; but the first imply and increase of fiscal deficit to 18% of PIB and the second imply that a have to release about 358.000 public employees.

Answer 4

You could do a few things to stimulate the economy, such as change some of the goverment speding, but also decrease some of the tax's that are out there.

Answer 5

It depends. A real depressed economy would benefit more from increased government spending ... the human benefit would be greater than the inflationary impact. A moderately depressed economy would benefit more from reduced tax rates on the middle class.