If the government increases taxes and keeps spending constant, it will result in an increase in government revenue. This can help to reduce the budget deficit, which is the difference between government spending and revenue. However, it may also lead to a decrease in consumer spending and investment, as taxpayers have less disposable income to spend and invest. This could result in a decrease in aggregate demand and economic growth.
The impact of the tax increase on economic growth will depend on various factors, including the size of the tax increase, the structure of the tax system, and the elasticity of demand for goods and services. If the tax increase is small and targeted at high-income earners who have a low marginal propensity to consume, the impact on economic growth may be limited. However, if the tax increase is large and imposed on a broad range of taxpayers, it could have a significant negative impact on economic growth.
It is also worth noting that the effectiveness of the government's fiscal policy depends on how the additional revenue is used. If the government uses the additional revenue to invest in infrastructure or education, it could have a positive impact on long-term economic growth. However, if the government uses the additional revenue to fund wasteful or inefficient programs, it may not have a significant impact on economic growth.