This leads the researchers to conclude that failing to account for the reasons for tax changes can lead to substantially biased estimates of the macroeconomic effects of fiscal actions. Nothing here is rocket science. The tax-to-GDP ratio is a ratio of a nation's tax revenue relative to its gross domestic product GDPor the market value of goods and services a country produces.
Real GDP can be higher than real potential GDP if the economy gets extra stimulus from government spending or tax cuts.
Tax increases to address inherited deficits were common from the late s to the early s, but rare before and after this period. The Congressional Budget Office estimated GDP growth would spike in but drop to more moderate levels in the coming years.
Because of a series of fiscal policy changes, Australia's tax-to-GDP ratio was further depressed. Taxed, and income does not come from providing a real input. India has had a comparatively low tax-to-GDP ratio due to low direct tax base, parallel economy and unorganised sectors that adversely impacted tax collections.
I did so here, in a prior post.