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Yes, the question of tax mix and it's influence on growth is intriguing.

I think the effect of borrowed-government-spending fits into that question. I just don't quite where to place it in importance.

My thinking goes like this: Government spending flows from two sources of money--taxes and borrowing. Taxes are accompanied by a discouragement factor and borrowing accompanied by a fear (of the future when repaying) factor.

The people receiving the benefit of government spending care not where the money source.

Historically, especially since WWII, government has not repaid borrowed money. Instead, government has rolled over the debt. The long term macro result is that we have government spending without the discouragement factor (of taxes) and a benefit to people receiving the borrowed money (when it is spent).

Hidden (in this discussion) is the fact that government has controlled a portion of GDP spending. That portion has been made larger by government borrowing (in direct proportion to borrowing).

What role does government spending have in proportion to the entire GDP? How does the mix of taxes (accompanied by disincentive) and money-sourced-from-borrowing play into the growth of GDP?

And of course, the really difficult question, what might the macro-economy look like if the government role was actually limited by tax revenue?

I'll provide a side-bar comment. I think that we (as a world-wide-society) can never get our arms around global warming if we try to tax carbon but then turn around and pay for the tax with borrowed money (which negates the tax discouragement effect).

Thanks for the post and insight it provides.

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