Question

what are direct expenditure offsets?

Answer 1

Direct expenditure offsets pertain to the spending within the private sectors from which offset was created due to actions from government fiscal policy being applied.

The government uses discretionary spending and changes in tax rates to try to reduce unemployment, spur sustainable economic growth and maintain stable prices for goods or service. As government spending represents only one facet of a complex system, changes in how other players in the system behave impact the effect of government expenditures.

As the government spends more money, private sector businesses typically spend less. For example, if government invests in infrastructure to support the Internet, major Internet service providers reduce their infrastructure investments. The reduction in private sector spending diminishes the value of the government investment and renders it partially or entirely moot. If the ISPs cut their investment to equal the government spending, the government expenditures yield no benefit. If they only cut their spending by 50 percent, government expenditures yield some benefit but less than intended.