Tax Multiplier Excel Template

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Let us take the example of a nation where the personal spending per capita increased by $500 as the disposable
income increased by $650. Now, the government has decided to take steps to increase the GDP by $250 million
in the current year. Suggest the tax policy which is required to achieve the desired GDP level.

Particulars Amount
Change in Consumption $500
Change in Disposable Income $650
Increase in GDP( ΔY) $250,000,000

MPC is calculated using the formula given below

MPC = Change in Consumption / Change in Disposable Income

MPC 0.77

Tax Multiplier for the Economy is calculated using the formula given below
Tax Multiplier = - MPC / (1 - MPC)

Tax Multiplier -3.33

Decrease in Tax Receipt for the Desired GDP Level is calculated using the formula given below
Decrease in Tax Receipt (ΔT) = - ΔY / Tax Multiplier

Decrease in Tax Receipt (ΔT) $75,000,000

00 as the disposable
DP by $250 million
Let us take another example where personal consumption decreased by $200 due to a decrease in disposable income
by $450. Now, the government wants to reduce the tax receipts by $100 million in order to relieve some pressure
on disposable income. Calculate the increase in GDP due to the initiative taken by the government.

Particulars Amount
Change in Consumption -$200
Change in Disposable Income -$450
Decrease in Tax Receipt (ΔT) $100,000,000

MPC is calculated using the formula given below

MPC = Change in Consumption / Change in Disposable Income

MPC 0.44

Tax Multiplier for the Economy is calculated using the formula given below
Tax Multiplier = - MPC / (1 - MPC)

Tax Multiplier -0.80

Increase in GDP due to Tax Cut is calculated using the formula given below
Increase in GDP (ΔY) = - ΔT * Tax Multiplier

Increase in GDP (ΔY) $80,000,000

 in disposable income
eve some pressure