Increases in spending have a significantly greater impact than tax cuts

Infographic of August 18, 2026

The infographic in the DIW Weekly Report 33/2026 shows the effects of fiscal policy measures on gross domestic product (GDP) in the euro area. The focus is on a line graph with two curves, which illustrates the change in GDP in euros following an increase in government spending or a tax cut of one euro, respectively. The horizontal axis represents the period from zero to four years after the measure is introduced, while the vertical axis represents the change in GDP. The curve for government spending rises significantly more steeply than that for tax cuts. Highlighted values show that investment and government consumption have effects of 1.4 and 1.3 euros, respectively, on GDP, while consumption taxes and income taxes have significantly smaller effects of 0.3 and 0.2 euros, respectively. The key finding is that increases in government spending in the euro area have a significantly greater impact on GDP than tax cuts. Source: Eurostat and our own calculations.

Topics: Business cycles , Europe , Monetary policy

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