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13 May, 2015 - 10:20

Expansionary fiscal policy may be less effective than needed if a crowding-out effect takes place as government prefers to finance spending through borrowings rather than taxes or new money. Fighting inflation may also be ineffective with reduced spending and increased taxation if the budget surplus is used to repay debt.

The tax surcharge enacted in the late 1960's to combat inflation was not effective to stop inflation because the revenues were spent immediately in the Vietnam war effort.