Why do govts raise interest rates to slow the economy instead of tax rises?

Question

With interest rate rises, the people in the most debt suffer the most. With tax rises, the highest paid suffer the most, and the govt has extra revenue to help the ones struggling the most. This is never considered by any govt. Why not?

In: 1129

Answer 1

If government raises taxes, it doesn’t remove money from the system. It goes from consumers and business’ (deflationary) to the governments which can be used for infrastructure or social programs (inflationary). Net effect is likely neutral unless they simultaneously reduce spending.

Raising interest rates sucks money out of the system by discouraging debt. Debt is a form of money creation because borrower gets money and lender can sell the IOU like it’s cash.