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Christina070's avatar

Are indirect business taxes included in the measurement of GDP?

Asked by Christina070 (111points) April 17th, 2012
3 responses
“Great Question” (0points)

I have to calculate the GDP for an economy, but are indirect business taxes included in this?

The formula is: GDP= C+I+G+(X-M)
C= Consumption, I= Investment, G=Government, X=Exports, M=Imports.

I am not sure where to include indirect business taxes in this formula.

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gorillapaws's avatar

I’m pretty sure they aren’t included at all, just like Government spending does not include benefit payments for GDP purposes. GDP is all about what an economy produces; things like taxes and food stamps aren’t really a measure of what a country is producing. I’m still not 100% on that though, so you should verify it.

wundayatta's avatar

Indirect business taxes should be included in government spending. This assumes government spends everything it takes in.

The problem with GDP is measuring it. You don’t want to double-count anything. So when a business spends money, it buys supplies and buildings and things to make products. Is this considered investment? Investment is such a waffly word. Perhaps it is everything a business spends in order to try to get a return.

Taxes are not to get a return. They are to fund government spending. I don’t know what indirect taxes are, but the same principle would apply.

Consumer spending is just spending, not investment. So it is called consumption. Even if the consumer thinks of it as an investment. Like you buy a computer, install adobe photoshop, and then make money photoshopping for people. If you’re not incorporated, it’s consumption, not investment.

Wherever you include it, you just have to make sure you are not double-counting it. If you include indirect taxes in investment, then you have to make sure you don’t include it in government, and vice versa. Don’t leave it out and don’t double count it.

One question you might ask is who is reporting the figure? Is it reported by business or by government or both? Is it reported by one, but hidden by the other? If that is the case, then you include it in the spending where it is hidden (because you don’t know what it is), and subtract it from the spending of the entity that reports it.

Of course, these numbers usually don’t match. So, for example. taxes that businesses report may not equal the taxes the government reports having been paid by businesses. What do you do then? I sure as hell don’t know, but it happens all the time. In fact, it is a rule, rather than an exception.

So these numbers are, to some extent, bogus. They are not very accurate, at the very least. The best we can do is try to make them consistent. Even that is difficult. Good luck!

Jaxk's avatar

Taxes are not part of the GDP regardless of the type. GDP is the total of all gods and services produced. Government spending is included but not government income (taxes).

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