The same is true for large increases in government spending.
Konstantinou and Tagkalakis 11 — Panagiotis Konstantinou, Lecturer at University of Macedonia, PhD in Economics from the European University Institute, and Athanasios Tagkalakis, Assistant Professor of Economics at the University of Patras, PhD in Economics from the European University Institute, 2011 (“Boosting confidence: Is there a role for fiscal policy?,” Economic Modelling, 07-xx-2011, Available Online at https://www.sciencedirect.com/science/article/abs/pii/S026499931100037X, Accessed on 05-29-2023)
An increase in government investment lowers consumer confidence. Whereas when the debt ratio is high it has negative effects on both consumer and business confidence. A higher government wage bill lowers both consumer and business confidence, with the effect on consumer confidence being stronger at times of high debt and on business confidence at times of low debt. The government wage bill and government investment exert a negative effect on confidence indices possibly because they entail a permanent increase in the size of the public sector, which would have to be financed by future taxes. In the case of public investment the standard Keynesian crowding out effect is also at play. On the contrary, an increase in the non-wage government consumption improves consumer confidence, whereas it improves both consumer and business confidence when the debt ratio is high. This could be linked to the fact that this type of spending is easily reversible if needed so.