In an upcoming article that I'm working on, I will explore that question further. For now, let's just say that I come down on the side of government expenditure, based on these reasons. If you can rout my reasoning, I'll be more than happy to hear your point of view.
I'm trying to find an instance in which taxes were higher--especially on individuals with the lowest MPCs--and government expenditure was the predominant dimension of fiscal policy being used to stimulate the economy. I'd like to compare that to a period during which the reverse was true: both government expenditure and taxes were cut. Of course, it's likely that other contextual factors will confound this endeavor. Can anyone point me to some empirical evidence that might enlighten this tax cuts vs. government expenditure debate?
Secondly, I'm interested in comparing average annual disposable income during the Clinton years, to average annual disposable income during the Bush years. I'm wondering if despite having had higher marginal tax rates, disposable income for median income households was greater than it is today, adjusting for inflation.
Ho: for median income households, real average annual disposable income was higher during the Clinton years than during the Bush years.
H1: for median income households, real average annual disposable income was not higher during the Clinton years than during the Bush years.