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I think that assumption makes sense if you don't think of the system as a closed loop. What if the increase in GDP happened only because you borrowed money and
by rohit2412 8y ago
I think that assumption makes sense if you don't think of the system as a closed loop.
What if the increase in GDP happened only because you borrowed money and spent it? What if you don't spend an equivalent amount next year, and that increase in GDP went away?
In this case, you want the money borrowed to be paid off completely by the taxation on increased gdp.
Which would be 1.03 * 3.8%=3.914% of gdp (deficit to be paid back next year) to equal 0.19 * 2.9%=0.551% (tax collection on increased GDP) of gdp, which it is very far from.
Add the fact that the increased GDP is normally as welfare/income of poor people, which is taxed less.
This of course leads to main question. Is the growth sustainable? If the govt borrowing+spending go away tomorrow, would the GDP not contract? If yes, Then this growth was unsustainable and was debt fueled.