How can tax cuts help revive the economy

How can tax cuts help revive the economy - Fiscal policies...

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Fiscal policies are implemented by governments to control and manage economies. In fiscal policies, governments make changes to taxation or government spending. When reviving an economy, the main goal will be to stimulate economic growth so as to close the recessionary gap. The tax multiplier suggests that a decline in taxes will result in an increase in production whereas an increase in taxes will result in a decrease in production. Therefore, one of the ways to achieve will be through reducing taxes (“TAX MULTIPLIER”). There are different kinds of taxation policies which governments implement. Two areas of taxation are household income and corporate income. In order to stimulate economic growth, income taxes can be reduced. This means that household will need to pay lower taxes and thus enjoy higher disposable income. This allows consumers to have greater purchasing power and be more able and willing to consume goods and services. Therefore, this will result in an increase in demand for goods and services.
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This note was uploaded on 09/20/2010 for the course ANM 8739 taught by Professor Morgan during the Spring '10 term at Alabama A&M University.

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