The Japanese experience of the 1990s indicates that increases in government spending financed by borrowing will

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The Japanese experience of the 1990s showed that increases in government spending financed by borrowing may sometimes fail to stimulate aggregate demand and the growth of real output. This is because such spending can increase public debt, which in turn may lead to a loss of confidence in the government's ability to manage the economy and to negative expectations about future tax increases or inflation. As a result, households and businesses may choose to save more rather than spend, leading to a decline in aggregate demand and a sluggish recovery. Inflation and real interest rate hikes are not necessarily the immediate outcomes of such policies.

The Japanese Experience of the 1990s Indicates That Increases in Government