Does government spending really boost the economy? Does cutting government spending, or rather, reducing the growth of government spending, hurt the economy?

Here is the answer to both questions, in one graph, from Britmouse (via Scott Sumner):

Sumner then continues his observations to compare the British experience with that of the troubled nations of Greece, Spain and Cyprus, where “austerity” has been blamed for their continuing economic problems.

The difference between them all? In addition to spending cuts, Greece, Spain and Cyprus imposed large tax increases on their populations, while the UK government did not (the UK tried to impose a 50% income tax rate on its top income earners in 2010, which was later repealed in 2012). Note in the chart above when British employment really began to recover….

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