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Lump-sum taxes are taxes that dont depend on the taxpayers income.
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LD VI
OR
E
W
W
ECONOMICS
in Action
28-7
FIGURE
Perce
nt
chan
ge in
GDP
15%
10
5
0
Germany
Canada New Zealand
Australia
Austria
5
10
Sweden
15 Switzerland
Belgium
Japan Finland
France
United Kingdom
Norway
Denmark
20
25
United States
Netherlands
Spain
Ireland
Italy
Portugal
8
10
Greece
12%
Quick Review
The amount by which changes in government purchases raise real
GDP is determined by the multiplier.
Changes in taxes and government transfers also move real GDP, but
by less than equal- sized changes in government purchases.
Taxes reduce the size of the multiplier unless they are lump-sum
taxes.
Taxes and some government transfers act as automatic stabilizers as
tax revenue responds positively to changes in real GDP and some
government transfers
respond negatively
to changes in real GDP. Many
economists believe that it is
a good thing that they
reduce the size of the
multiplier. In contrast, the
use of discretionary fiscal
policy is more controversial