Within the theoretical scope of the economy , the existence of a fiscal multiplier is shown, which is extremely important for the governmental entities that sustain the income and investments of a country.
This aspect is mandatory, since each of the changes that are directly related to it will affect the state of GDP (Gross Domestic Product), national income or any other aspect that may intervene in the economic production of a country .
Due to this, within the world of economics it is essential to know what this multiplier is about and what are the factors that directly influence it, in order to work properly and make the exact calculations related to its variations.
What is and how does a country’s fiscal multiplier interact?
Government entities, whether directive or manipulator of state finances, are departments whose main responsibility is to ensure the well-being of a country.
Taking this into account, each of these entities works based on a fiscal multiplier, which is responsible for measuring the investments made by the Government and the effect that this causes within the economy .
To better understand it, many times the state directive has seen the imperative need to establish a budget for a specific project , which will be in charge of improving the benefits to citizens in a significant way.
This project is nothing more than a social investment that the State is making, which will automatically trigger a series of consumptions that will influence the country’s economy, either positively or negatively.
A clear example of this is when the highest authority of a city decides to build or improve the headquarters of government institutions, which will require a significant investment in raw materials and workers.
Both the workers and the producers of raw materials must start consuming the capital obtained through this work, which will be paid back to the country in one way or another .
Elements that influence the calculation of the tax multiplier
Taking into account the aforementioned, each economist should know that to carry out this type of project it is necessary to work based on a theory of cost and production .
Therefore, this public investment becomes directly the aspects that will determine the degree of profit obtained within the work and the effect that this will produce on the economy , which are denominated as follows:
The tax multiplier is the main agent that interacts within the economy of a country
The tax is nothing more than a percentage that the society that lives within a country must pay before a negotiation, in order to pay back the investment that the Government has made for the availability of that space, product or other service.
From those visionaries who seek the best options to invest their money and multiply it , to the lady who decides to buy a certain product, the price of said investment is subject to a percentage determined by the financial institution of a country to ensure the economic stability of the society.
The spending multiplier is the agent based on which the fiscal multiplier works directly
This popular term in economic theory deals with the influence that public spending has on the financial income of a country .
This aspect works based on the investment example that was presented earlier in this article, which determines that its effect will remain equal to or above one, this number being only the multiplying result that occurs once the investment is processed .
In this way, the consumer is made to fulfill its three main functions , and thus the budget that has been invested for the social welfare of a country, can be indirectly returned to the economy managed by the government entity.
