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Effect of change in Tax on GDP: If taxes are increased, then people will feel as if their income has gone down, and so they
Effect of change in Tax on GDP: If taxes are increased, then people will feel as if their income has gone down, and so they will start cutting on their spending, also on their savings, and will also feel like working less (due to income effect) and when taxes decrease, their spending increases, are motivated to work more and save more (due to substitution effect).
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