Impact of the Average Tax Rate on the Aggregate Demand (Keynesian Models)
Bulletin of the Georgian National Academy of Sciences, Vol. 6, No. 2, 2012
8 Pages Posted: 3 Dec 2012
Date Written: December 1, 2012
Based on an analysis of a modified version of the standard Keynesian Model of a product market, it is shown that a change in the average tax rate has a complex effect on aggregate demand. Since the parameter of marginal propensities to purchase is easily regulated, by selecting its appropriate value the government can purposefully use a tax increase to stimulate or to reduce aggregate demand.
Keywords: Keynesian model of aggregate demand, average tax rate, marginal propensity to consume, marginal propensity to public purchases
JEL Classification: E12, E62, H21
Suggested Citation: Suggested Citation