Tax Multiplier

Definition

The tax multiplier represents the change in aggregate demand resulting from a change in government taxes. It measures how much total spending changes for each dollar change in taxes.

Related terms

Fiscal Policy: Government actions related to taxation and spending aimed at influencing economic conditions.

Automatic Stabilizers: Features built into the economy, such as progressive taxation and unemployment benefits, that automatically stabilize fluctuations in economic activity without requiring explicit policy action.

Discretionary Fiscal Policy: Deliberate changes made by policymakers to government spending or taxation with the goal of stabilizing or stimulating the economy.