<p>If the government taxes people but does not spend the money, accumulating surplus, it will decrease aggregate demand. Aggregate demand depends on consumption, which depends on disposable income and taxes reduce disposable income. A decrease in aggregate demand will decrease the price level, reducing inflation or causing deflation, if nothing else happens (see <a href="https://www.economicshelp.org/blog/2269/economics/ways-to-reduce-inflation/" rel="nofollow noreferrer">this</a> article by Pettinger).</p>

CC BY-SA 4.0
2021-02-24T10:08:38.583Z
Nice answer but it could be improved with references to sources
1muflon1
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2021-02-24T13:50:35.490Z
Your first sentence talks about the money supply, but the rest is about the the impact of fiscal policy on the balance between aggregate supply and demand, which is a slightly different issue.  I prefer the second part in response to this question.
Henry
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2021-02-24T16:13:50.700Z
@1muflon1 I added some source
csilvia
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2021-02-24T16:20:26.767Z
@Henry I deleted the first sentence but at our university we were taught that fiscal contraction reduces M holdings of households. I know that fiscal and monetary policy are different
csilvia
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2021-02-24T09:50:10.530Z
2021-02-24T16:19:06.670Z
2021-02-24T16:19:06.670Z
csilvia
<p>Also, do the opposite that is lowering tax rate controls deflation?</p>

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2021-02-24T09:26:32.397Z
Welcome to Economics:SE. Thank you for your question; please consider revising it to be more in line with our community expectations. Like many other stacks, [we expect questions to provide evidence of prior research](https://economics.stackexchange.com/help/how-to-ask). That helps us to understand the question, and avoids our repeating work you've already done. Our [help center](https://economics.stackexchange.com/help), and [other stacks](https://interpersonal.meta.stackexchange.com/questions/3224/how-do-i-write-a-good-question) provide additional resources to assist with revisions.
1muflon1
<taxation>
How do increasing tax rate helps control inflation?
Sarah
# How do increasing tax rate helps control inflation?

(Asked by: username_0 on 2021-02-24)

Also, do the opposite that is lowering tax rate controls deflation?

**Tags:** taxation

> **Comments:**
> **username_1**: Welcome to Economics:SE. Thank you for your question; please consider revising it to be more in line with our community expectations. Like many other stacks, [we expect questions to provide evidence of prior research](https://economics.stackexchange.com/help/how-to-ask). That helps us to understand the question, and avoids our repeating work you've already done. Our [help center](https://economics.stackexchange.com/help), and [other stacks](https://interpersonal.meta.stackexchange.com/questions/3224/how-do-i-write-a-good-question) provide additional resources to assist with revisions.  

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## 1 answers

### Answer by username_2 on 2021-02-24. Score: 1

If the government taxes people but does not spend the money, accumulating surplus, it will decrease aggregate demand. Aggregate demand depends on consumption, which depends on disposable income and taxes reduce disposable income. A decrease in aggregate demand will decrease the price level, reducing inflation or causing deflation, if nothing else happens (see [this](https://www.economicshelp.org/blog/2269/economics/ways-to-reduce-inflation/) article by Pettinger).

> **Comments:**
> **username_1**: Nice answer but it could be improved with references to sources  
> **username_3**: Your first sentence talks about the money supply, but the rest is about the the impact of fiscal policy on the balance between aggregate supply and demand, which is a slightly different issue.  I prefer the second part in response to this question.  
> **username_2**: @username_1 I added some source  
> **username_2**: @username_3 I deleted the first sentence but at our university we were taught that fiscal contraction reduces M holdings of households. I know that fiscal and monetary policy are different  

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