Income tax acts as a shock absorber because

Question

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Income tax acts as a shock absorber because it reduces disposable income, which means that it makes consumer spending less sensitive to fluctuations in GDP. This is because when GDP decreases, income tax revenue decreases as well, leading to a decrease in disposable income. When GDP increases, income tax revenue increases, leading to an increase in disposable income. By acting as a stabilizer, income tax can help to reduce the negative impact of economic shocks on consumer spending.

Income Tax Acts as a Shock Absorber Because