(A) The expansion might become pro-cyclical ex-post, given the lag time required to change
fiscal policy.
(B) Fiscal policy works with a lag, thus a tax cut introduced today would not have an
expansionary effect on aggregate demand till many months later.
(C) The fiscal expansion would increase distortion in the economy.
(D) Lower taxes would increase the government’s borrowing requirement, which in turn
would cause interest rates to rise, which in turn would i) cause the exchange rate to
appreciate, which in turn would cause the current account to move into deficit, and ii)
crowd out private investment.
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