Indirect tax is levied on goods and services before reaching customers. Tax burden can be shifted between entities unlike direct taxes. Average indirect tax share in OECD countries was 32.7% in 2018. VAT was created by Dr. Wilhelm von Siemens in 1918
Fiscal policy uses government spending and taxes to influence economy. Automatic stabilizers are passive, while discretionary policy is active. Expansionary policy increases aggregate demand through tax cuts or spending. Contractionary policy decreases aggregate demand through tax increases or spending cuts
Taxation is compulsory levies imposed by governments worldwide. Taxes are the most important source of government revenue. Direct taxes are based on individual's ability to pay. Indirect taxes are levied on production or consumption. VAT is a type of indirect tax collected through credit method
National savings equals total income minus consumption and government spending. Government policies significantly influence national savings through taxation. Tax cuts increase household consumption and savings. Income taxes affect household saving rate more than consumption taxes
Arthur Laffer developed the Laffer curve in 1974 to explain tax rate-revenue relationship. Tax revenue is not maximized at 100% due to worker disincentives. Tax cuts have both immediate arithmetic and long-term economic effects
Economic growth is an increase in production of goods and services. GDP is the most common measure of economic growth. Growth can be measured in nominal or real terms