In the short term, yes. Long-term, no (it would have the opposite effect). Productivity gains accrue compounded over time, spending cuts show up immediately.
Government spending is included as part of GDP, so a 20% reduction in spending would have an immediate effect on this number.
That's why a lot of economists think GDP is a bad metric, since a debt-fueled spending spree (like the US government loves to do) shows up as GDP growth which makes it hard to compare GDP numbers since nobody ever adjusts for debt-to-GDP ratios.
If you look at this chart, you can see what I'm talking about. For the sake of argument let's say both Sweden and the UK had the same GDP growth rates and similar levels of government spending. Sweden would be the more productive economy because they'd be doing that with far less debt: https://en.wikipedia.org/wiki/Debt-to-GDP_ratio#/media/File:...
A debt fueled spending spree by private enterprises boosts GDP too, for the same reason. That’s kind of the point of the number that measures spending sprees (and the other various kinds of spending).
The degree to which it’s a “good thing” or not is another question. The assumption that either party is automatically productive or wasteful is obviously incorrect. Governments can burn money or invent the internet and private industry can build jet engines or tamagotchis.
If GDP is growing equally fast in both countries but with dramatically different levels of indebtedness, you can unequivocally claim one is more productive than the other at present.
Sure, either country might invent the next AI in the future.
But if we're assuming debt-fueled government investment is what results in this future growth (big assumption), then the less indebted competitor still has the capacity to take on all the debt they aren't shouldering at present to grow even faster.
> If GDP is growing equally fast in both countries but with dramatically different levels of indebtedness, you can unequivocally claim one is more productive than the other at present.
Government spending is included as part of GDP, so a 20% reduction in spending would have an immediate effect on this number.
That's why a lot of economists think GDP is a bad metric, since a debt-fueled spending spree (like the US government loves to do) shows up as GDP growth which makes it hard to compare GDP numbers since nobody ever adjusts for debt-to-GDP ratios.
If you look at this chart, you can see what I'm talking about. For the sake of argument let's say both Sweden and the UK had the same GDP growth rates and similar levels of government spending. Sweden would be the more productive economy because they'd be doing that with far less debt: https://en.wikipedia.org/wiki/Debt-to-GDP_ratio#/media/File:...