GDP, Disposable Income, and Taxation From economic theory, Disposal Income = GDP – Taxation Equivalently, GDP = Disposal Income + Taxation Does this equality hold empirically? Let’s look at US data in 2000, 2010, and 2020.
| 2000 | 2010 | 2020 | GDP | 41800 | 48400 | 63200 | Disposable income | 27300 | 36100 | 45700 | Taxation | 7224.199 | 6990.291 | 12300 | sum of disposable income and tax | 34524.2 | 43090.29 | 58000 | Difference between GDP and sum | 7275.801 | 5309.709 | 5200 |
From the above table, in all years, GDP is greater than the sum of disposable income and taxation. Why does this occur? The measurements of economic data are usually not very accurate. However, here the differences are very substantial. GDP is always greater. This suggests a systematic bias in measurement. What causes this bias? I also have a question about the theory itself. All taxations go to support some people. Tax dollars goes to the salaries of public employees, and contractors and benefits. At aggregate level, taxation shouldn’t reduce disposable income. In other words, Disposal income per capita = GDP per capita What’s wrong with my reasoning?
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