Balanced Budget Multiplier Law and Legal Definition

Balanced Budget Multiplier is the ratio of the change in aggregate output (GDP) to a change in government spending, which is matched by an equal change in taxes. This is termed a balanced-budget multiplier because the change in spending is matched by the change in taxes and thus the government's budget deficit or surplus is neither increased nor decreased. If the government had a balanced budget before the changes, then it has one after the changes. The balanced budget multiplier is important in understanding the way governments manage the economy.