The macroeconomic influence of the government's reduction of taxation in a closed economy

Abstract

As the world's economies develop, governments always use economic policies to achieve specific economic objectives like decreasing the unemployment rate, improving economic growth, maintaining price stability, and deteriorating the current deficit. Also, tax changes could be one of the standard government policies. Moreover, with the changing taxation in a closed economy, some variables must be influenced. For example, the output and the rate of employment might change. This essay synthesizes several pieces of literature to discover the impacts on output and employment if the state cuts taxes. Based on these works, employment could rise when the government reduces the tax, the short-run output might increase, and the long-run output will be stable. Furthermore, economists may utilize these findings to make better national financial plans.