Question

why is taxation regarded as a leakage and government spending as an injection?

Answer 1

Above question need to be reworded as ‘Taxation an injection and government spending a leakage’.

Taxation on the public, injects money into the government coffers and therefore the economy. Whereas government spending is a leakage from the treasury. Various taxes that are levied on products and services, fetch the government, money. Government spending by way of projects, expenses on law-makers etc., are met out of income from taxes or surcharge.

Answer 2

Taxation is regarded as a leakage and government spending as an injection ,this is the part of injection leakage model of th expenditure analysis.

The first half of the injection leakage model is the injection.

• The three injections are the investments,government spending ,expenditures and the exports.

The other half  of the injection leakage model is the leakage.

• The three leakages are savings ,imports and taxes.

They are injected and leaked out of the  circular flow of consumption,production and income.