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We all know that the formula for GDP I'd given by

GDP = C + I + G + NX

I would like to know, whether I am right in deducing that when consumers and industry pay taxes, or when there are import and export taxes I suppose, these do not increase the value of C and I in the equation. Instead, these increase the value of G, provided that the money supplied in taxes to the government is spent.

Is this correct?

Thanks.

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In this equation:

GDP = C + I + G + NX

Taxes come from a combination of C+I but are offset by an increase in G.

Any government taxation which is not spent is an investment, so remains part of I.

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  • $\begingroup$ Why did you use the term offset. Are we talking about positive and negative quantities? I don't think so. I think just G increases, leaving C and I unchanged. Is it not so? $\endgroup$ Jun 4 '19 at 10:29
  • $\begingroup$ I mean, the taxes are included as part of the G value, but not as part of C and I, correct? $\endgroup$ Jun 4 '19 at 10:31
  • $\begingroup$ Taxes fund government spending and typically come at a cost to consumption. An expanded GDP equation would be: Y = C(Y - T) + I + G + NX $\endgroup$
    – Jamzy
    Jun 4 '19 at 15:35
  • $\begingroup$ What are Y and T in your equation? $\endgroup$ Jun 5 '19 at 16:32
  • $\begingroup$ Also, don't they come at the cost of I as well. Too many taxes mean companies move abroad where there are less taxes. $\endgroup$ Jun 5 '19 at 16:33

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