... total government spending must equal to Government's total revenue. Thus, holding a government budget plan, a cut in today's taxes must be matched by an increase in tomorrow's taxes. Therefore the substitution of budget deficit for current taxes has no impact on current aggregate demand. Another way of saying this is that a decrease in public saving will be exactly offset by an increase in private saving, thus total nation saving remain unchanged. For example, government cut taxes today in hope of an increase in current domestic spending, however, households' realize that a cut today means a raise in taxes tomorrow, thus they will increase their saving today in order to pay for a raise in the taxes latter. Thus the total aggregate demand does not change. Public sector Budget Constraint Public debt is the total of a nation's debt; it is an indicator of how much public spending is financed by ...

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