Definition
- Income tax
- Income tax is based on personal income, so receipts rise automatically when pay rises in a boom and fall when pay falls in a recession.
Example
Can you think of an example of income tax?
A factory worker on £30,000 a year loses her job and stops paying income tax. Her spending falls by less than her lost pay, because the tax she no longer pays cushions it.
Test yourself
Can you name the three main automatic stabilisers?