How does 8 percent persent reduction in revenue affects the economy?

Answer 1

It depends how the percentage reduction is made and to whom! Generally a reduction in government revenue if reflected in spending is likely to have a depressive effect on the economy as the flow of money in the economy slows down. However, although its not necessarily a popular idea amongst conventional economists, libertarians and some Austria-school economists would argue that a reduction in government revunue means a reduction in tax, and a reduction in tax means more corporate revenue, which would , they argue, be stimulatory itself. I'm not sure there is evidence for this however as it seems to contradict a number of observed phenomena, including the tendency for austerity measures to actually depress economic recovery.