Spending and Tax Multiplier Properties

An increase in government spending has a larger effect on GDP than an equivalent tax cut because the tax multiplier is smaller in magnitude.

The tax multiplier is calculated as -MPC/MPS, reflecting that an increase in taxes reduces disposable income and thus consumption.

The tax multiplier is always larger in absolute value than the spending multiplier because each dollar of a tax cut fully converts into spending.

The spending multiplier is calculated as 1/MPS; for example, if MPS is 0.2, the multiplier is 5.