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This is from: https://eml.berkeley.edu//~dromer/papers/RomerandRomer.pdf

What does it mean that we are looking at a "tax increase of 1 % of GDP". What does a tax increase have to do with the GDP? If the tax is 20 %, and we raise it to 22 %, that's an increase of 2 percentage points, or 2/20 = 10 percent. What does GDP have anything to do with it?


The tax increase is first measured in dollars. Since the dollar amounts are large, and not comparable across countries, they divide by the size of nominal GDP. This is standard practice in discussing macroeconomic policy. This way, we can quickly judge the relative size of a quantity without having to run to an economic database to see statistics on the size of the economy.

In this case, they are looking at a tax increase that is assumed to equal 1% of nominal GDP. That is, if nominal GDP were \$100 billion, that is a tax increase of \$1 billion.


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