When finding a country's GDP where does the tax money that the citizens pay fall under?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Gross Domestic Product (GDP) is a measure of the market value of all final goods and services produced in a country in a given time.  As such, it does not directly measure money that is paid in taxes.  However, the money paid in taxes does typically end up becoming part of GDP when it is used to buy goods and services.

One way of calculating GDP is to add up the spending by consumers, spending by businesses on investment, and spending by the government.  The money we pay in taxes generally falls into this last category.  If I am a teacher, for example, my salary is paid for by taxes.  When the government pays my salary, it is paying me for a service and that payment becomes part of GDP.  This is how the majority of our taxes are included in GDP--they are included because the government takes our tax money and uses it to buy goods (asphalt, cars, computers) and services (teachers, police officers).  When the government buys those things, the tax money it uses to pay is included in GDP. 

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