Various governments are imposing austerity budgets on their economies. In Britain and the US, even "progressives"are supporting cutting net spending but prefer to focus on tax increases while the "conservatives" are recommending spending cuts and privatisation. In terms of the initial impact on national income, which policy option will be more damaging - a tax increase which aims to increase tax revenue at the current level of national income by $x or a spending cut of $x?
Answer: Spending cut