Induced Taxes


DEFINITION of 'Induced Taxes'

Within the context of macroeconomics and fiscal policy, a type of tax that changes when an economy's real gross domestic product (GDP) changes. The relationship between induced taxes and GDP is positive; as real GDP rises, taxes will also rise, and visa versa.

BREAKING DOWN 'Induced Taxes'

Induced taxes can be used by a government as an automatic economic stabilizer. For example, when the level of real GDP falls substantially, which is indicative of an economic recession, the government can reduce taxes to help spur economic growth.

By reducing taxes in the short-term, an economy's consumption expenditure will increase, causing a rise in the short-term GDP.

  1. Taxes

    An involuntary fee levied on corporations or individuals that ...
  2. Gross Domestic Product - GDP

    The monetary value of all the finished goods and services produced ...
  3. Stealth Taxes

    A type of levy that governments use to increase their revenues ...
  4. Nominal GDP

    A gross domestic product (GDP) figure that has not been adjusted ...
  5. Recession

    A significant decline in activity across the economy, lasting ...
  6. Real Gross Domestic Product (GDP)

    An inflation-adjusted measure that reflects the value of all ...
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