When taxes are a function of income, the investment multiplier, government spending multiplier, and tax multiplier are all less than they would be if taxes were a lump sum amount.

Question

Quizplus · Accepted Answer

When taxes are a function of income, they have a greater impact on disposable income and consumption compared to a lump sum amount, which reduces the impact of changes in government spending on the investment multiplier and reduces the size of the tax multiplier.

When Taxes Are a Function of Income, the Investment Multiplier