Taxes affect the economic choices made by individuals, but so do the expenditures for which the taxes are collected. Government spends money by purchasing goods and services and by providing benefits in the form of transfer payments and subsidies. We use the letter G to denote government purchase of goods and services and T to denote taxes minus transfer payments.
In our simplified version of national income and product accounts (NIPA) accounting, we consider all government purchases to be consumption spending, such as spending on the wages for government workers. But it is important to recognize, as do the NIPA accounts, that some government purchases are for infrastructure projects like roads and schools.
Here ...
Get Macroeconomics, Third Edition, 3rd Edition now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
