Proponents of fiscal stimulus see the direct effects of the stimulus as fostering growth. Government spending, for example on infrastructure or education, directly employs people and also provides paychecks that will mostly be spent by the workers hired, creating additional demand and employment. Transfer payments like unemployment benefits or tax cuts also put money into people’s pockets, much of which will typically be spent, thereby creating demand and jobs. By contrast, advocates of fiscal adjustment, in the form of higher taxes and/or lower government spending, rely on the indirect effect of these policies to increase growth. The argument.
