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Effect Of Gdp On Business

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Effect of change in Business Tax on GDP: Business taxes are taxes imposed on the profits of the business. It serves as revenue for the government. However, business taxes might reduce the country's GDP because they limit the net income of businesses as well as discouraged businesses from expanding or increasing production as businesses would think increasing production means paying more taxes. Therefore, business taxes have a negative relationship with GDP. According to Rittenberg et al., “An increase in the investment tax credit, or a reduction in corporate income tax rates, causes increase investment, therefore would shift the aggregate demand curve to the right. Real GDP and the price level will rise. A reduction in the investment tax credit, …show more content…

Since GDP measures the aggregate output of the whole economy by summing up personal expenditure, government expenditure, investment and net exports, an increase in income will also increase GDP. Increased income means that consumers are making money from producing and selling more, thereby increasing the country's GDP. “An increase in income taxes reduces disposable personal income and thus reduces consumption causing the aggregate demand curve to shift leftward by an amount equal to the initial change in consumption that the change in income taxes produces times the multiplier. Also, a reduction in income taxes increases disposable personal income, increases consumption, and increases aggregate demand.” (Rittenberg L. et al., 2009). As personal income increases, consumption will increase, as consumption has increased so companies will have to produce more and to do so they must invest more, causing an increase in investment. As people are paying more taxes, government income increases, which will result in more government spending and if personal income decreases, then consumption, investment and government spending (assuming there are no relief packages or changes in fiscal policy) will decrease. It shows that any changes in personal income will have a significant effect on …show more content…

Reference:
Investopedia. (2018). How does gross domestic product (GDP) affect standard of living?. [online] Available at: https://www.investopedia.com/ask/answers/060115/how-does-gross-domestic-product-gdp-affect-standard-living.asp [Accessed 23 Mar. 2018].
PPI, W. and PPI, W. (2018). Effects of Income Tax Changes on Economic Growth. [online] Penn Wharton Budget Model. Available at: http://budgetmodel.wharton.upenn.edu/issues/2016/7/14/effects-of-income-tax-changes-on-economic-growth [Accessed 23 Mar. 2018].
Rittenberg, L. & Tregarthen, T. (2009). Principles of Economics. Flat World Knowledge
Samwick, W. (2018). Effects of Income Tax Changes on Economic Growth. [online] Brookings. Available at: https://www.brookings.edu/research/effects-of-income-tax-changes-on-economic-growth/ [Accessed 23 Mar.

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