Pro-growth policies: tax receipts as a percent of GDP

[johntavv]

Looking at reading 16, practice problem 12Bi, question says:
Describe how changes tax receipts as a percent of GDP would be be pro-growth.
Answer says: Declines in government tax receipts as a percent of GDP would be pro-growth because the equilibrium level of goods and services would increase.
But if goods and services are produced to a certain level (say 100), then the government takes a percent of tax receipts (say 15%, so government takes 15), the equilibrium level produced is still 100. Isn’t the equilibrium level (100) the same, and only the tax receipts amount (the 15) changes? So even if the government took tax receipts of 12%, the equilibrium would still be 100, and government collects 12.

 

[Galli]

Where’s the 3% tax reduction going to?

 

[S2000magician]

I think you need to go back to your Level I Econ (No, no! Anything but that!) and draw a demand curve and a supply curve. Then draw a new supply curve below the old one to represent the tax reduction. What happens to the equilibrium price and quantity?
(Thought so.)

 

[johntavv]

So if we have an upward sloping supply curve and downward sloping demand curve, if we draw a new supply curve below the old one (that is to the right), we get a lower price but higher quantity. So if the goverment lower their tax receipts, it affects the government, but not the original equilibrium. What am i missing?

 

[S2000magician]

johntavv wrote:So if we have an upward sloping supply curve and downward sloping demand curve, if we draw a new supply curve below the old one (that is to the right), we get a lower price but higher quantity. So if the goverment lower their tax receipts, it affects the government, but not the original equilibrium. What am i missing?

Growth.